Retail News interview

24|Retail News|September 2014|www.retailnews.ie

The Retail News Interview

Straight Talking

Vincent Jennings, Chief Executive of the CSNA, lets loose on local authorities, fires a broadside at the banks, and rails against the planned reintroduction of JLCs for the grocery sector and the absurdities of upward only rent reviews.

AS Ireland drags itself inexorably out of recession, one sector is taking longer than the rest to dust itself off, shake itself down and get back to anything approaching former glories: retail.

While there are many good reasons for this delay, including the prevalence of deep discounting both in retail stores and in the consumer mindset, Convenience Stores & Newsagents Association CEO, Vincent Jennings, believes that the Government must take its share of the blame.

“When this Government came to

power, it looked at opportunities for quick fixes and it chose to prioritise tourism and agriculture as areas that would respond quickest to stimulation,” he states. “Rather than having an integrated plan that included a variety of sectors to restore Ireland’s economy, the Government chose to be selective in where it sought solutions.

“The messages given to banks, to entrepreneurs and to venture capitalists were that we needed to put every shoulder behind the wheel of agriculture and tourism. In a depleted

money market, the banks were effectively being forgiven for placing a substantial amount of their resources into those sectors rather than retail.”

Jennings believes that “lack of stimulation and interest in retail at a state level, coupled with the fact that we were left to paddle our own canoe in terms of upward only rent reviews, put retail very much on the back-foot”.

He feels that the lack of credit for small and medium sized retailers, “meant that large corporations like Lidl, like Aldi, like Tesco, who didn’t have difficulty in persuading lending institutions to give them credit, allied with their own resources, were able to get a surer footing on the climbing wall that is Ireland’s economy, because they didn’t have to rely on things that smaller retailers had to rely on.”

Standing Up to the Banks The Government, according to Jennings, needs to take a stronger stance when it comes to dealing with Ireland’s banks.

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The Retail News Interview “Banks run rings around Government, day in and day out,” he feels. “Even though they have every excuse under the sun for doing things the way they do, they really want to get back to where they were, to wield the power they did previously, and that’s just not going to happen. The banks have to be told who is running the show and on whose behalf: until that truly happens, you’re just going to have banks calling the shots.”

He cites the example of the banks’ recent fee hike for cash handling, which meant that retailers, like Jennings’ members, “are now paying three or four times the amount of bank fees for the same amount of work. We know that cash costs money to process but how can it cost four times the amount that it did a year ago? That was an opportunity for the state to turn around to banks and to say that these kind of increases were neither justifiable nor sustainable, or to demand there be a root and brand examination of banks’ fee structure, but it didn’t happen.”

Indeed, it is only really in the last year that the Government has started to take on board the concerns of Ireland’s retailers, Jennings notes.

“Now, there is an understanding that a substantial amount of jobs have been lost in retail and that retail remains a huge employer, hence the establishment of the Retail Consultation Forum.

Retail was slow to be given any impetus, but the Government have begun to listen to certain aspects of what we are saying.”

Retail’s importance is because it is a 26-county industry, according to Jennings: “It’s rural; it’s urban; it’s everywhere. It doesn’t require large scale infrastructure or anything like that but there does have to be sufficient return on investment for people for it

to be worthwhile.”

The CEO welcomed recent comments by Ann Phelan TD, Minister of State at the Department of Agriculture, Food and Marine and Transport, Tourism and Sport with Special Responsibility for Rural Economic Development, relating to out-of-town shopping centres and their effects on local economies.

“Jumping to the tune of a large multinational outlet or a group of retailers who choose that this is where consumers will shop doesn’t necessarily suit the Irish consumer,” Jennings rails. “I believe that giving assistance to

Ann Phelan TD, Minister of State at the Department of Agriculture, Food and Marine and Transport, Tourism and Sport with Special Responsibility for Rural Economic Development, has questioned the effects of out-of-town shopping centres on local economies.

area where Jennings feels particularly strongly about.

“We have been misled on the real reason why nothing has been done on upward only rent reviews. We do not believe that there is a constitutional impediment to this legislation but that landlords and NAMA have effectively got to the Government over the issue of Ireland’s attractiveness as a base for investment, as opposed to looking after indigenous retailers.” rural and community based employment is something that Government should be considering more and more.”

The Trouble with Local Authorities Many of the issues surrounding out-of-town development and the subsequent effects on town centres, including parking charges, rates etc are not directly handled by central government but are local authority issues. This is an

“Most civil servants working in Government departments are reasonably efficient when compared with local authorities, who are dreadfully and manifestly inefficient in their whole method of operations,” he argues.

“There are savings that can be made across the board, not merely by consolidating local authorities, but also in areas like centralised payroll etc, but every local authority seems to be a fiefdom by

itself.”

He believes that local authorities have become over-reliant on the business community to provide revenue, via rates, which he feels has “worked against local employers and against the regeneration of town and village centres across the country, which have been allowed to wither away on the vine”.

“Local authorities should be forced to become a lot more efficient and the only way to do that is to hit them in the pocket,” he argues. To that end, Jennings is calling for a planned reduction, year by year, of commercial rates, over the next five years, so that these local authorities have to run much more efficiently.

“A number of local authorities have already voted to reduce the property tax, because that is a popular thing to do, but there has been no parallel movement by these elected officials to have a structured reduction in commercial rates,” he notes.

He also describes as “farcical and hugely unfair” the fact that there is a two tier system operating on valuation, “whereby people are competing and paying vastly different rates based on different criteria”.

“There is also no appeal mechanism based on changed economic circumstances, which doesn’t

26|Retail News|September 2014|www.retailnews.ie

The Retail News Interview

make sense,” he argues. “The only circumstances in which you can appeal is if the premises itself changes, rather than the level of business. You can have a downturn of 30% but the local authority isn’t interested.”

Another issue to raise Jennings’ ire is the high cost of labour in Ireland, particularly given the Government’s plans to reintroduce JLC rates for the grocery sector.

“The JLC as a mechanism for devising rates of pay is unfair, it’s arbitrary, it’s capricious and it certainly is a barrier to the growth of our industry because it stops retailers from taking on new staff due to the huge costs involved,” he says. “We have no difficulties with a national minimum wage, but we fail to see why our sector should be paying more in wages, while people selling the exact same product in their specialist stores are not obliged to pay these premium wages.”

Onwards and Upwards on Rent Reviews?

Another big cost is rent, with a large proportion of landlords either refusing to engage with tenants on rent reductions or imposing upward only rent reviews. Senator Feargal Quinn’s

bill to abolish upward only rent reviews goes before the Dáil this autumn. How hopeful is Jennings that it will pass?

“The Government can choose to oppose it and be hypocritical about the fact that it was one of their tenets for Government when they were running

“Most civil servants working in Government departments are reasonably efficient when compared with local authorities, who are dreadfully and manifestly inefficient in their whole method of operations.”

for office,” he sighs. “We’d like the Government to allow this Bill to pass and then let the President either sign it into law or refer it to the Supreme Court to determine if it is compatible or incompatible with our Constitution.”

Jennings, however, believes that we “have been misled on the real reason why nothing has been done on upward only rent reviews. We do not believe that there is a constitutional impediment to this legislation but that landlords and NAMA have effectively got to the Government over the issue of Ireland’s attractiveness as a base for investment, as opposed to looking after indigenous retailers.”

Jennings admits that while most landlords are realistic and have acted “in a sensible fashion”, there are others (“large pension fund owners, multinationals and institutional investors”), who, either themselves or through their agents, have adopted “unbelievably bellicose, belligerent and arrogant styles in dealing with Irish retailers, large and small”.

He cites the recent example of a small retailer who was negotiating with NAMA over their rent. “They were pleading with NAMA to allow a new lease to be agreed, but eventually

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The Retail News Interview the retailer had to close. Somebody else will get that property at a lower, realistic rent, which is so frustrating for my members. This is so unfair: it is somebody’s life and livelihood.”

Competition And Consumer Bill As mentioned in last month’s Retail News, the CSNA believes that the forthcoming Competition and Consumer Bill does not do enough to protect retailers from abuse of power by suppliers.

“While the Act does merge the Competition Authority and the Consumer Agency, it is geared mainly towards giving protection to indigenous suppliers from having their arm twisted by large multinational retailers, looking for hello money, promotional money and everythingunder-the-sun money,” Jennings notes.

“It really concentrates on the need for fairness from retailers when dealing with suppliers, rather than any reverse or parallel responsibilities for larger suppliers. Even though the Act can be read that way, that isn’t the spirit under which it was created.

“The areas of concern we had were not addressed,” he adds. “We were concerned with areas like phone companies, service companies, news distributors, license operators like PPI and IMRO. We are concerned that they can still introduce charges, increase wholesale prices to us and effectively determine retail prices. The Competition and Consumer Act has done nothing to redress that.”

Plain Packaging Another major issue for the CSNA and its members is the proposed move to introduce plain packaging for tobacco products in Ireland, which was trumpted by former Health Minister and current Minister for Children, James Reilly TD. “We don’t know whether the new Health Minister, Leo Varadkar will choose to offload aspects of public health onto the Department of Children. It would be unusual for a Health Minister not to have overall responsibility for matters of public health but Ireland manages to do things in a strange fashion sometimes, and it could be argued that James Reilly was the one to run with this particular ball and that there is a children’s aspect to this,” Jennings muses.

“How it will impact on the retail trade is very simple: it will lead to a commoditisation of the product and people will move towards buying

tobacco and cigarettes based on price rather than anything else, over a pretty short time period. Brand will mean nothing, so price will be a major factor in consumers’ purchasing decisions.”

If this happens as Jennings predicts, it will mean that retailer profits will obviously suffer, as consumers choose value products over premium. “A move to plain packaging will generate less money for retailers.

It will not affect overall demand for tobacco products but it will change what they buy and where they buy it,” Jennings notes. “We already have a very established smuggling network in Ireland and if price becomes a factor, do you really think that people will not continue to buy smuggled product?”

He doesn’t believe that a move to plain packaging of itself will lead to a reduction in youth smoking rates in Ireland. While acknowledging that price is arguably a strong deterrent in reducing smoking rates, he feels that Ireland’s tobacco prices are already at such a high level compared to the rest of Europe that price cannot be increased any more without leading to more smuggled product entering the market. “What the Government should have done 15 years ago was to cut off all potential for tobacco smuggling before they went down the price route,” he sighs.

A Unified Voice The CSNA recently joined forces with other retail bodies, RGDATA, Retail Excellence Ireland and ISME, to slam

the former Health Minister’s proposed tobacco licensing system. The combined retail bodies have requested that the Department of Health be present at the next Retail Consultation Forum.

“With a bit of luck, we will have a more open dialogue with the Department of Health,” Jennings says. “It is only in very recent years that the Department actually chose to close itself off from consultation with interest groups and that can be reversed.”

He foresees -Ireland’s retail groups working together on other issues in the future. “We all have similar interests and similar members,” he notes. “Issues such as rates, JLCs and the costs of doing business here affect all of us and it would be foolish not to join forces, to amalgamate, if only for the fact that it is more efficient for a Minister to meet with a group of people representing three or four different groups, rather than having separate meetings.”

In closing, Jennings has the following advice for Ireland’s retailers, to help lift themselves and the retail sector in general back to a position of health.

“Don’t always be waiting for somebody else to do things for you,” he states. “We should be doing things ourselves at a practical level. You should devote shelf space to Irish products, to promote Irish goods, and support local groups and community based initiatives. You can make a difference by being cleverly patriotic, and in doing so, you are securing your own future.”