The retail sector is feeling the effects of the economic downturn. It's no longer easy street on high street, writes Arthur Beesley

Long used to heady expansion and handsome profit, Irish retailers are having a tougher time of it this Christmas as growth declines and price-conscious consumers hunt for bargains.

With pre-Christmas sales a feature in many outlets, the sector seems to be moving to a downbeat rhythm for the first time in years. After a prolonged expansion, it's no longer easy street on high street.

No one says the bottom has fallen out of the market entirely. Indeed, plenty of retailers say their business is growing steadily. Yet certain market participants say they must work harder now than for a good many years to make money. As the annual shopping extravaganza reaches its peak in the coming days, many operators are feeling pressure on their profit margins due to heavy discounting.

"In relative terms it's a difficult year, but in real terms it isn't. Would you rather go back to 1954? You wouldn't," says Tom Coffey, chief of the Dublin City Business Association. "You can't do double-digit growth every year for ever. It can't happen."

Many of the most ardent and wealthiest shoppers are avoiding the Irish market altogether, leaving en masse for New York to take advantage of the weak dollar. With the economic downturn at home sapping consumer confidence, shoppers are less flush with their cash, increasingly cautious when spending it and more discerning too.

After more than a decade in which Irish retail delivered year after year of record growth, it seems the sheen has finally started to fade. The property slowdown and higher interest rates are big factors. So was the poor summer, when only travel agents did well. That left many stores with surplus goods on their hands and no option but to cut prices to shift stock.

On the plus side, Christmas Day falls on a Tuesday this year, leaving three full shopping days after many workers take holidays next Friday. If that leaves ample scope for a final push before turkey time, there has been a slower start to the season.

"Is this year as rosy and as straightforward? There's no question that it's not. At the same time, that doesn't mean that there's not a huge amount of consumer spending," says Mark Stafford, chief of Stafford Group, the owner of Lifestyle Sports.

While Lifestyle is offering €15 vouchers with every €100 spent, Mr Stafford says economic conditions have fostered a "very pro-consumer" retail environment, and adds that that is "only right".

"We think we're in store for a very good Christmas. I don't think Christmas is going to land on our laps either. There's so much money still going to be spent this Christmas. The consumer has plenty of choice, you've got to make sure your offer is compelling," he says.

"In Ireland we're very quick to get upset about growth rates falling to 3-3.5 per cent. In other markets they'd kill for that."

The absence of any Irish retailer from the stock market means means up-do-date financial information on any of the big local players is not publicly available. Still, Central Statistics Office figures on retail spending offer a shard of insight into trading conditions in the run-up to Christmas. The volume of retail spending grew by just 0.5 per cent in October when compared with September, and the value of household goods sales fell 2.9 per cent in same period.

Nevertheless, these same figures show that growth in the volume of retail sales here is second only to Slovenia in the euro zone. Irish shoppers are still a big draw for international retailers.

"The Irish market has been performing very well for us as a group," says Mike Shearwood, deputy chief of the Mosaic group in London, which owns the ladies fashion brands Karen Millen, Coast, Oasis and others. "We've experienced significant expansion in the last year with a number of our brands. Ireland still continues to outperform."

On the ground, late opening seven nights a week in central Dublin throughout December suggests that no one will leave anything to chance this Christmas.

In addition, pre-Christmas sales imply that some retailers are prepared to take a cut on their profit margin to avoid being left with an overhang of stock in January. An alternative explanation, as offered by Arnotts chairman Richard Nesbitt SC, is that stores not facing pressure have had to protect their position by responding to competitors.

Like some of its rivals, Arnotts department store had a "20 per cent off everything" promotion at the start of December. "We would have been the last in our sector and we would have followed market trends," Mr Nesbitt says. "Year-on-year our sales pattern is trending above last year."

Tom Coffey says footfall in the city is in line with last year and 2005, "but not above" such levels. "If you're a retailer doing an extra 2 or 3 per cent growth in profit on top of inflation you're doing really well," he says.

"It's the most difficult year for at least 15 years because the last 10 years have been fantastic with double-digit growth. Now we're into single-digit growth. Having said that, this year is still a great year. The number of customers in the whole country has doubled. Even though percentages in terms of growth might have fallen you've still got double the number of customers."

Mr Coffey says top-tier and mass market stores are performing well, but says the "mid-market" fashion outlets are being squeezed. While declining to identify any particular retailer in that group, he also says spending by young home-owning parents is under pressure.

"The 30s generation are caught because they're the people with very high mortgages and they're usually the high spenders because they have kids."

Similarly, Habitat Ireland owner Malcolm Brighton says sales of big-ticket furniture have taken a hit due to the property slowdown. Such sales were boosted by the special savings account money in the first half of the year, he says, but sentiment changed in the second half.

"There is money there, but people I think are holding back on some of the bigger-ticket items," he says.

"Overall I think that the furniture business has been hit by the slowdown in the economy and general nervousness about the housing market. Certainly since autumn things have got quite difficult in the market place in our area . . . The first half of next year is going to be quite tough as well."