UCD Michael Smurfit Graduate Business School and the Marketing Institute of Ireland (MII) launched the Consumer Market Monitor Q4 results today which show that consumer confidence has once again dropped to a crippling rate of -25 in December 2010. This figure can be attributed to consumer anxieties such as the December budget, IMF bailout and government uncertainties. This decline in confidence from -12 in August 2010, to -25 in December 2010, has caused the Irish index to drop below the UK by 30% and EU by 24% in the same period.
The monitor which tracks key indicators of confidence and activity in the Irish consumer market highlights that this decrease in consumer confidence had a knock on effect on consumer spending, as personal savings peaked at 12% in 2010. Given the continuing uncertainty in the jobs market and rising interest rates, it is expected that personal savings will stay above 10% until 2013 reducing to 8% thereafter. To download the full report visit http://www.mii.ie/cmm/
Although the rate of saving is considerably high, the monitor outlines that consumer spending has remained relatively stable with a modest decline of – 1.7% in consumer spending overall in 2010. This is significantly better than 2009 which experienced – 7.2% drop in consumer spending. With disposable incomes falling further at the outset of 2011, as the December budget measures are implemented, consumer spending is forecast to fall by a further 2.2% in volume terms this year.
“The monitor’s Q4 results have shown changes in the economy such as rising taxes, increases in essential consumer products and services such as electricity and fuel, are making it hard for people to justify spending on unnecessary items. This is also contributing to a high rate of disconnections such as healthcare insurance and other key services.” said Mary Lambkin, Professor of Marketing, UCD Smurfit School. “These increases collectively are making a very substantial impact on people’s ability to live and it is important that decision makers and politicians keep the human costs of their business decisions in full view and keep prices down as much as possible.”
Overall, retail sales, excluding the motor trade, stabilized in 2010 as the volume of retail sales decreased by just -1.8% in 2010 compared to – 7% in 2009, and decreased by 4.4% in value compared to -11% in value in 2009. 2011 is still a very bleak scenario for retailers and will continue to be so in 2011 with reduced disposable incomes and price increases in essential services. Retail sectors that have experienced a growth in sales include: department stores (5.3%); Electrical goods (5.1%) in volume; Food (1.7%) and Non-specialised stores (2.2%). However a number of sectors showed continuing decline such as: Household Goods (-1%); Pharmaceuticals and cosmetics (-0.4%); Fuel (-21.5%); Clothing, Footwear & Textiles (-0.8%); Books, stationery etc. (-10.7%); Bar sales (-9.9%).
The only sector to experience a very positive year has been the motor trade. New car sales rebounded in 2010 with a reported 65% increase in new cars sold, rising from 57,118 to 88,373. Over 17,000 cars sold in 2010 were due to the scrappage scheme, almost one in every five; fortunately this scheme has been extended until June 2011. Sales of second hand cars were down 21%, from 50,597 to 40,387, suggesting that the scrappage scheme has diverted consumers to purchase new cars rather than second hand.
Tom Trainor, Chief Executive of the Marketing Institute of Ireland said, “Q4 results clearly show that retailers have had a tough year getting consumers through their doors. Creative marketing campaigns, longer sale periods as well as falling prices have been put into place to counteract the estimated 10% fall in sales in the week leading to Christmas compared to the same period last year. 2011 poses another difficult year for marketers as they try to compete against falling disposable incomes and higher tax rates. However, this can only leads to increased competition in the market, resourceful marketing campaigns and added value for Irish consumers.”
Personal sector credit has been declining at a consistent pace in 2010 as the annual rate of loans to households was -4.8% in November 2010, as repayments continue to stay higher than draw-downs of loans. Residential mortgage lending, which accounts for 85% of all personal sector credit, has dropped every month in 2010 to reach a figure of €107billion in November. Lending for house purchases was 1.7% lower on an annual basis to the end of November 2010 and overall the number of mortgages issued fell by 20% from 22,079 in 2009 to 17,820 in 2010. However, the trend over the year was upwards, with each quarter up on the previous by 21% and 4% respectively with first time buyers remaining the strongest segment of the overall market, accounting for 60% of the total market in value terms.
The number of new loans paid out for home purchases is a good indicator of the number of new homes being bought and sold in the market. There still remains a large overhang of 120,000 unsold units in the Irish market at present, which amounts to 8% of the national housing stock of 1.5million units. Fewer than 10,000 new houses were completed in 2010. However, the ESRI has predicted that we will have a need for an additional 185,000 homes by 2021 due to a rise of 0.5 million in the Irish population.
Non-mortgage related personal sector credit has experienced a similar fate as consistent decline since its peak has resulted to a figure of €20 billion at the end of Q3 2010, a reduction of 37% and a year on year fall of 16% to the end of November. This is also reflected in the reduction of personal credit cards which stood at 2.11million in Nov 2010 a drop of 5% since 2009.Net outstanding credit card debt has also dropped by -3.8% from €811m Nov 2009 to €792m Nov 2010, mirroring the overall credit consciousness and drop in Irish consumer spending figures.
The Consumer Market Monitor uses quarterly data collected from sources including the Central Statistics Office (CSO), the Central Bank, the European Commission, and various other secondary sources. To download the full report visit http://www.mii.ie/cmm/
About the author
The Consumer Market Monitor is a service provided by The Marketing Institute of Ireland in collaboration with the UCD Smurfit Graduate Business School.