Tánaiste Publishes Report On Cross-Border Retail Business Costs

Tánaiste and Minister for Enterprise, Trade and Employment, Mary Coughlan, T.D., has published the findings of a study that she commissioned into the comparative cost of operating retail businesses in Ireland, the North, Britain and the Netherlands.

The study, which was led by Forfás, was commissioned in response to claims by retailers that higher business costs south of the border were a major factor in the higher cost of retail goods in Ireland.

The study undertook to examine the composition of retail business costs at home and determine how their cost base compared with retailers in other jurisdictions.

In comparing Dublin and Belfast, the study found that while operating costs in Dublin were on average 25 per cent higher than Belfast, given that operating costs accounted for only 20 to 25 per cent of the total cost of a retail good, such costs could only justify a 5 to 6 per cent differential in the retail price of the same good between Dublin and Belfast.

The methodology adopted in the study examined the cost composition for different types of retail format; benchmarked the relevant unit cost data for Dublin, Cork, Limerick, Galway, Belfast, London, Manchester and Maastricht; and aggregated the retail profiles and unit cost data to establish relative costs in each location. Key findings included:

• The wholesale cost of goods for sale in stores was by far the biggest cost faced by retailers and accounted for 75 to 80 per cent of their total costs.
• Operating costs, principally labour, property and utilities, accounted for 20 to 25 per cent of retailers' total costs.
• Operating costs in Dublin were higher than in all of the other locations surveyed except London and were 25 per cent higher on average than in Belfast. The cost base in Cork, Limerick and Galway was more competitive with locations in the UK.
• Higher operating costs in Dublin or other locations in Ireland affect only the 20 to 25 per cent of retailers' total costs accounted for by operating costs. The 25 per cent operating cost differential between Dublin and Belfast therefore would add 5 to 6 per cent to the overall cost base of a retail business in Dublin compared with a similar business in Belfast.
• Though higher operating costs in the South add no more than 5 to 6 per cent to the total cost base of a retail operation here compared with one in Northern Ireland, the available evidence suggests that the gap between prices North and South is substantially higher.

Publishing the study, the Tánaiste noted "I am conscious that trading conditions are very difficult at the moment and that individual retailers have been trying to keep sales up with promotions and other offers. I would however urge retailers to do more to reduce the price differential that remains once operating costs are accounted for."

She continued, saying that "while we accept that the cost environment in Ireland is a contributory factor to higher retail prices, it does not explain North-South price differences of the magnitude that continue to exist."

The Tánaiste said the Government is committed to improving the cost competitiveness of the business environment and that in the current economic climate, cost pressures were moderating.

The Tánaiste also referred to the recent surge in the value of the euro against sterling. She said that retailers had factored higher operating costs in Ireland into their prices well before the euro's rise against sterling since the last quarter of 2007 and that "the relative cost of doing business in Ireland and UK had not altered measurably over this period and, in fact, UK inflation had been almost double that in Ireland in the year to November 2008".

The Tánaiste concluded by urging all retailers to give consumers the benefit of a stronger euro.