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The Consumer Market Monitor - Q4 2017

Posted By The Marketing Institute & UCD Michael Smurfit Graduate Business School, Monday 19 February 2018
Updated: Friday 16 February 2018

consumer market monitor Q4 2017Irish consumers spent €3 billion with online retailers abroad in 2017

 

- Retail sales up 7% to €40 billion in 2017

- Online retail spending at €5 billion, 60% going out of the country

- Disposable income reached €102 billion in 2017, above 2007 peak

 

read report

 

 

Dublin, 19 February 2018: Irish consumers spent €5 billion online in 2017, with €3 billion of that going to online retailers abroad. This is according to the latest findings of the latest Consumer Market Monitor (CMM), published today by the Marketing Institute of Ireland and UCD Michael Smurfit Graduate Business School. Data from the Q4 2017 monitor indicates that the Irish consumer economy is in good health with total disposable income at €102 billion – eclipsing the last peak experienced a decade ago in 2007. Retail spending has seen the most significant growth, with up 7% last year to €40 billion, despite losing at least €3 billion to overseas suppliers through online spending.


Data from the Q4 2017 monitor indicate that Irish consumers are spending on most types of goods and services. The strength of demand is especially evident in the housing market where 50,000 homes were sold last year, despite a chronic shortage of supply. The number of properties for sale stood at just 18,900 at the end of 2017.


“It is great to hear the cash registers ringing again for Irish retailers, and signs are positive for continued growth. The rapidly expanding labour market and rising incomes are two significant factors fuelling spending, however, a significant amount of retail spending is leaving the country. Only 40% of online retail spending goes to Irish websites which is disappointing for indigenous businesses. This is something that can be improved upon, but will require investment in websites and e-commerce platforms, as well as access to decent broadband infrastructure,” according to
Professor of Marketing Mary Lambkin UCD Smurfit School, author of the report


“Continuing employment growth is increasing the disposable income in circulation. This has taken us just about back to the level we were at 10 years ago, before the recession stalled the economy” said
Tom Trainor, Chief Executive of the Marketing Institute of Ireland.

 

Summary

Consumer spending in Ireland is now growing at a strong pace and continues to be one of the main drivers of economic growth, along with construction. Growth continued in both sectors in 2017 and this trend is expected to endure throughout 2018. Total consumer spending was up 2.8 per cent for the year, while construction grew by an even more significant amount of 4.2 per cent.

For consumer spending, it was a year of two halves. Consumers were relatively cautious in the first half of the year— with spending up by just 1.5 per cent year-on-year. This figure reflects a decline in new car sales with many consumers switching to second hand imports, as well as weaker spending on services. Conversely, spending accelerated in the second half of the year, reaching an estimated growth rate of 5.3 per cent in the final quarter. This positive momentum is continuing into 2018, with all forecasts indicating growth of close to 3 per cent for the year.

The main drivers of this growth are population expansion, along with increasing employment. There are now 2.2 million people at work, up 48,000 year-on-year, and up by 344,000 or 19 per cent from the low point in 2012. Growth of 2.2 per cent is forecast for 2018 and 1.8 per cent for 2019 which will bring another 90,000 people into the workforce.

The increasing number of people employed, as well as increases in hours worked, is leading to a substantial surge in the amount of disposable income in the economy. There has been a marked increase in aggregate disposable income which has increased upwards by about 5 per cent per year in each of the past three years. In sum, it reached €102 billion in 2017, eclipsing the 2008 peak of €101 billion.  It is forecasted that disposable income will continue growing in 2018 and 2019 at a similar rate of 5 per cent per annum.

Pay increases have also contributed to the rise in disposable income, with pay rates up by around 2 per cent per annum for the past three years. Increases of approximately 3 per cent are forecast for this year, and a similar rate is predicted for 2019. Households across the economic spectrum are now starting to gain from strong employment and wage growth.

Irish consumers’ confidence is also strong at present, and significantly higher than in the UK and the rest of Europe. It fell slightly in the second half of 2016 due to worries about Brexit but recovered relatively fast and got a significant boost in recent months.

Retail sales were very strong in 2017, up by 7 per cent in volume and by 4 per cent in value, the fastest rate of growth since 2007. All retail categories performed well with household goods out-performing all other categories.  

Sales of new cars are one significant exception. Sales were down by 10.5 per cent in 2017 for a total of 127,045 units. However, there was a dramatic rise in the number of imported second hand cars, up 47 per cent in 2016, and up again by 46 per cent in 2017, to a total of 92,508. The combined sales of new and imported second hand cars were actually up by 3.5 per cent for the year.

Sales of services have also been showing signs of weakness, with growth of just 2.3 per cent for 2017, compared to 5 per cent for each of the previous three years. Professional and technical services grew strongly but sectors such as accommodation and food service and telecommunications were relatively flat.

Predictably, residential property is the sector under most pressure. There were just 18,900 properties for sale in December 2017, or 1 per cent of the national housing stock of 2 million homes. Despite the tight market, sales strengthened in 2017, up 10 per cent to 49,756, the highest rate of sales since the recession. This upward trend is expected to continue in 2018, with 55,000 sales transactions expected for the year.


Consumer Confidence

Consumer confidence in Ireland has been recovering since 2013, reaching a record high in June 2015. Confidence fell slightly through 2016 as a result of industrial unrest at home and uncertainty about Brexit abroad.

However, it picked up again in 2017, and ended the year on a high level, well above the EU average. The current level is consistent with a steadily growing economy, expanding employment and the economic recovery reaching more and more people around the country.

Consumer confidence in the UK has been negative since Q2 2016 due to the uncertainties surrounding Brexit, coupled with general political uncertainty. Confidence declined steadily through 2017, reaching a low of minus 8 in December. In contrast, consumer confidence has improved significantly across the rest of the EU, reflecting strengthening economies.


Consumer Incomes and Spending

The disposable income of Irish households rose by 5 per cent in 2017 to a total of €102 billion, eclipsing the last peak of €101 million experienced a decade ago in 2007. The strong labour market is the main driver of the growth in disposable income, with pay increases also contributing. External factors also impacted the boosted spending, lower fuel prices and a weakening in the value of sterling being two significant factors.

There are now 2.2 million people at work, up 48,000 for the year, and up 344,000 from 2012, with average pay increases of 2 per cent common in 2015, 2016, and again in 2017.

Household spending, which accounts for about 94 per cent of all personal spending, closely mirrors income. It began to pick up in 2014, up by 2 per cent increased by 4.5 per cent in 2015, and by 3.5 per cent in 2016.

2017 saw spending increase by a further 3.8 per cent to €94 billion and forecasts indicate a similar rate of growth in 2018.


Consumer Borrowing

Borrowing by Irish households grew at a record level from 2000 and peaked in March 2008 at €150 billion but has declined steadily since then. Household debt continued to fall during 2016, down by 1 per cent, but grew by 2 per cent in 2017, the first sign of a return to normal conditions.

Loans for house purchases, which account for 84 per cent of household loans, peaked in Q1 2008 at €124 billion, but fell to a low of €73 Billion by Q4 2016, a cumulative decline of 40 per cent. Mortgage lending has increased since then, up by €4 billion by end 2017, an annual growth of 5 per cent.

The personal loans category peaked in Q1 2008 at €30 billion but declined to €12 billion by December 2016, a reduction of 60 per cent. This category resumed growth in mid-2016 and grew by 5 per cent in 2017.

Significantly, the ratio of household debt to disposable income has fallen by 60 per cent from a peak of 215 per cent in mid 2011 to 141 per cent in Q1 2017, leaving Irish households still the 4th most indebted in the EU.


Residential Property

Residential property is the sector under most pressure, as has been the case since the economic recovery began. There were 45,342 homes sold in 2016 which was lower than the 47,313 sold in 2015 in a situation of very short supply.

Sales strengthened in 2017, up 10 per cent to 49,756, the highest rate of sales since the recession. This was despite a lack of stock; there were just 18,900 properties for sale in December 2017, or 1 per cent of the national housing stock of 2 million homes.

This upward sales trend is expected to continue into 2018, with 55,000 sales expected for the year. This will be assisted by the increase in the number of new homes being built, estimated at 20,000 this year, up 58 per cent from 2015.


Services

The services sector recovered quicker than the retail sector from the recent recession, showing modest growth from 2011 onwards, and recovering more rapidly in the last two years. Growth slowed in 2017, however, to a rate of just 2.3 per cent.

Professional, scientific and technical services did best, up 10.4 per cent, and accommodation was up 1.8 per cent. Unfortunately, most other sectors were in negative territory: wholesaling (minus 5.3 per cent), administrative and support services (minus 0.5 per cent), information and communication (minus 1.3 per cent), transportation/storage (minus 0.3 per cent), and other services (minus 2.5 per cent).


Car Sales

Car sales began to recover in 2014, with 92,361 sold, a 30 per cent increase, and this rate of growth continued in 2015 with 121,110 sold. Sales continued upwards in 2016, with 142,688 cars sold, a slightly lower growth rate of 18 per cent.

New car sales were weaker in 2017, down 10.5 per cent year-on-year, for a total of 127,045. In contrast, there has been a dramatic rise in the number of imported second hand cars, up 47 per cent in 2016, and up again by 46 per cent in 2017 to a total of 92,508. This reflects the weakening of sterling which makes imports better value. Taken together, car sales in 2017 were actually up 3.5 per cent, which is reasonably healthy, and not indicative of a weakening in consumer spending.


Retail Spending

Retail sales were very strong in 2017, up by 7 per cent for the year in real volume terms. Growth accelerated as the year progressed, suggesting that this strong momentum will continue into 2018. Sales equated to spendings of €40 billion which is back to the levels seen in the last boom.  This growth rate was matched exactly by the level of VAT returns which increased by 7.1 per cent to a total of €13 billion for 2017.

All product categories experienced growth in Q4 2017. Household equipment which combines furnishings, electrical goods, and hardware, continues to be the fastest growing category, up by 13.7 per cent in volume and 8.2 per cent in value, year-on-year. Bookstores and newsagents, which have been steadily declining for the last 8 years, increased in Q4 by 2.5 per cent in volume and 3.4 per cent in value.

  • Food sales up 2.1 per cent in volume and up 5.5 per cent in value
  • Non-specialised stores (supermarkets) up 5.7 per cent in volume and 4.7 per cent in value
  • Fuel up 0.4 per cent in volume and 3.7 per cent in value
  • Clothing, footwear & textiles up 5.7 per cent in volume and 1.8 per cent in value
  • Household equipment up 13.7 per cent in volume and 8.2 per cent in value
  • Department stores up 8.2 per cent in volume and 4.0 per cent in value
  • Pharmaceuticals and cosmetics up 7.6 per cent in volume and 6 per cent in value
  • Bar sales up 2.2 per cent in volume and up 4.9 per cent in value
  • Books, newspapers, stationery up 2.5 per cent in volume and 3.4 per cent in value

 

infographic consumer market monitor q4 2017

 

About the Author

 

Mary Lambkin

Mary Lambkin is Professor of Marketing in the UCD School of Business where she teaches courses to undergraduate and postgraduate students and is involved in a range of research projects under the general heading of marketing strategy.  She has written extensively on this subject in academic journals, and also writes commentaries on marketing topics of contemporary interest for professional publications. She has served as Head of the Marketing Group, as Dean of the UCD Business School and as a member of the Governing Authority of the university at various times, and also holds a number of positions in companies and professional organisations outside the university.


About UCD Michael Smurfit Graduate Business School

 

In 1964, University College Dublin became one of the first universities in Europe to offer the degree of Master of Business Administration (MBA).  In 1991, the graduate business school opened its own campus in Blackrock, County Dublin.  With over 100 faculty members, 1,300 students and 75,000 alumni worldwide, UCD Smurfit School is one of a small number of business schools worldwide and the only school in Ireland, to hold triple international accreditation (US - AACSB, European - EQUIS and UK – AMBA). The school’s programme has been consistently ranked among the leading European business schools’ programmes by the Economist and Financial Times, since 2000.

 

The School is also a member of CEMS and the Global Network for Advanced Management, which are alliances of leading global business schools.


About The Marketing Institute of Ireland

The Marketing Institute is the professional body for Ireland's marketing people. It exists “to enable marketers to build great brands and great careers”. It does this by sharing best practice, insights and expert content, building the community of marketers, and aiding marketers in career progression. The three themes of content, community and career underpin all Institute activities. The Marketing Institute also owns and operates the All Ireland Marketing Awards, the CMO Summit, and DMX Dublin, Ireland's largest marketing conference.

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