Competition and the onset of new industrial relations in the Irish retail sector?
Having been insulated from intense competition for many decades, the Irish retail industry has been suddenly plummeted into a new competitive environment with the increased dominance of large stores and, in particular, by the arrival of foreign multiple retailers. According to a new report, with this intensification of competition, traditional approaches to the conduct of industrial relations around collective bargaining and adversarial postures have attracted considerable attention. While there is much debate as to the appropriateness of this model, no clear alternatives would appear to be emerging. The reasons for this are twofold: employers appear reluctant to depart from cost-based competitive strategies; and the recent growth in the Irish economy and in consumer spending has insulated employers further from the severities of competition.
This feature is drawn from a report to the Labour Relations Commission, entitled Competitive strategies and employee relations in the Irish retail sector and written by Majella Fahy of the Graduate School of Business, University College Dublin.
Structure of the retail industry
The Irish retail trade consists primarily of a large number of small outlets which are family owned and staffed. When the last Census of Services was conducted in 1988, more than 70% of outlets were under individual proprietorship. However, like most other sectors of the economy, the retail trade is undergoing significant structural change. While the total number of retail outlets has increased steadily over the past 20 years, this overall increase conceals a variation in trends between subsectors and also between store types within subsectors. For example, the number of food outlets dropped by 31% (from 13,940 to 9,669) between 1977 and 1993. This drop reflects a growing concentration in the grocery sector in which a smaller number of organisations serve the market through fewer but generally larger stores. In 1977, 2% of retail outlets in the grocery sector accounted for 25% of turnover; however by 1993, 2% of retail outlets accounted for 50% of turnover.
Most of the concentration in the grocery sector had been brought about by four supermarket chains which, with 137 outlets between them, have 59% of the grocery market. Further, while the number of "symbol group" outlets (collaborative groups of independents, such as SPAR) declined between 1977 and 1993 this decline conceals a growth in size and turnover. They currently account for approximately 22% of market share ,and between 1991 and 1993 the number of outlets increased slightly. Symbol groups have succeeded in winning back market-share from the multiples by responding to a niche in the market for neighbourhood convenience stores with long opening hours.
The retail trade is an important source of employment in Ireland; at present it employs 139,900 people, which accounts for just over 11% of total employment. Employment in the sector has grown steadily throughout the 1990s, but much of this growth has been concentrated in part-time employment. In 1988, part-time employment accounted for 28% of employment and, if current trends continue, it is estimated that 46% of those employed will be part-time by 2000, rising to 56% in the case of department stores and 55% in clothing and footwear. While it is estimated that between 1994 and 2000 employment gains will be made in all subsectors of the retail trade, only household goods, and clothing and footwear, are expected to experience a gain in full-time employment and those gains are modest estimated at 420 and 539 respectively.
Between 1988 and 1994 employment grew by 20% (2,609 employees) in the clothing and footwear subsector and by 23% (1,354 employees) in household goods. During the same period employment in the grocery sector grew by 8% (2,625 employees). The grocery sector remains a major employer, accounting for 39% of total employment in retailing; however the non-food sector is more responsive to increases in discretionary income and projections suggest that it will benefit most from the current growth in consumer spending.
The traditional system of managing industrial relations in Ireland is based very firmly on pluralist principles. It is accepted that the relationship between managers and employees is fundamentally adversarial in nature, although it is believed that differences can be resolved or, at least, compromises can be reached, through collective bargaining which marks out the middle ground between management and employees. Industrial relations in the retail sector, particularly among large employers such as supermarkets and department stores, conform to this trend. Most large employers in the retail sector recognise and bargain with trade unions and while union density, at 25%, is low by national standards, it can largely be explained by a lack of union penetration among smaller retail outlets. Union density among larger retailers is much higher, with some of the larger retailers operating closed-shop arrangements.
Employment relations in particular subsectors of the retail trade are also regulated by a number of legal mechanisms. For example, a joint labour committee for the grocery trade sets minimum rates of pay and terms of conditions of employment. A similar function is performed by Registered Employment Agreements which cover clothing and footwear outlets. These arrangements can also influence the organisation of work by, for example, setting the ratio of part-time to full-time staff to be used in retail outlets. In addition to being bound by these regulations, many large employers have entered into detailed procedural agreements with trade unions.
However, not all employers in the retail trade are happy with this system of managing employee relations. Some retailers, particularly those operating small outlets, seek to manage their businesses without interference from trade unions and have sought to resist recognising trade unions. This strategy is informed by a number of considerations: some employers are competing on the basis of price and operating on very tight profit margins, and consequently fear that trade unions will hinder their ability to recruit and deploy labour in the most cost effective way. For other employers, the notion of having to negotiate and compromise with trade unions simply does not sit easily with their managerial values.
The impact of competition
Like most other sectors, the retail trade is experiencing increasing competitive pressures. A combination of changing consumer tastes and preferences, demands for improvements in the quality and range of services and growing competition from international retailers is forcing Irish retailers to review organisational structures and working practices. Ireland plays host to a significant number of foreign retail operations and, in the past two years, international retailers, particularly UK chain stores, have shown a growing interest in the Irish market and have opened a large number of outlets. For example, the Burton Group opened five stores in one shopping complex in the suburbs of Dublin in October 1996 and in a matter of weeks the group opened more outlets in another shopping complex in central Dublin. Clearly, this influx of foreign retail operators represents a serious competitive threat to Irish retailers. The sheer size of these foreign retailers puts them in a very strong bargaining position with manufacturers and suppliers. In addition their centralised distribution systems, coupled with state-of-the-art technology which monitors consumer buying patterns across outlets, facilitates a "just-in-time" system of stock control which keeps costs to a minimum.
Some organisations have chosen to respond to these competitive pressures by introducing longer opening hours and by increasing the number of part-time employees in an effort to match the supply of labour more closely with peaks and troughs in consumer demand. Perhaps not surprisingly, working hours and working practices have become issues of dispute. Management and trade unions have entered into long and intense negotiations in relation to issues such as appropriate rates of pay for sales staff who work on Sundays, and the acceptable ratios of part-time to full-time employees. Negotiations have been so protracted that, while experiments with Sunday trading commenced in the summer of 1994, many employers did not reach agreements with trade unions until the autumn of 1995 and Ireland's largest retail chain, Dunnes Stores, became embroiled in a bitter dispute which resulted in a strike that lasted for three weeks.
While intensified competition has forced employers in the retail sector to reassess organisational structures and working practices, it has not resulted in the development of a radically different approach to managing labour relations. Rather, there appears to be a growing sense of confusion amongst retailers about how best to respond to growing competitive pressures.
Some retailers have opted to pursue cost-based employment management strategies, but for many these strategies would seem to conflict with their overall competitive posture. There would appear to be a number of reasons for this:
- first, few retailers can opt to compete solely on the basis of price, as they remain concerned about the quality of the service they provide. They are dependent on their employees to use their initiative and skill when interacting with customers and therefore find it difficult to pursue cost-based employment management strategies which engender low trust and commitment amongst employees;
- second, the institutional support for minimum rates of pay has deterred most retailers from stridently pursing a cost-based employee relations strategy; and
- third, the size and operating structures of international retailers has given them a significant cost advantage over Irish retailers, putting the latter under severe pressure to control costs. However, if they respond to this competitive threat with cost-based employment management strategies they risk damaging the quality of the service they provide, and this may further enhance the competitive advantage of international retail chains.
While a cost-based employee relations strategy does not appear to be a viable option for many organisations operating within the retail trade, employment management practices which seek to develop a flexible and committed workforce through sharing information with employees and building commitment to the overall goals of the organisation, have also proved to be unattractive. In fact, the few examples of this approach to managing employee relations which exist in Ireland are in operation either on "greenfield" sites with young employees or in organisations which have been forced by serious competitive crises to change their employment management practices. At present, however, pressures of this magnitude are not bearing down on the Irish retail sector. Competition is intense but the sector is enjoying the benefits of economic growth. Consumer spending is increasing and many retailers are reporting significant increases in turnover and profits. Perhaps this growth in the industry is muffling the effects of intensified competition and so the incentive to transform employee relations radically is not particularly marked. As a result, industrial relations within the sector remains within the domain of traditional adversarialism. (Majella Fahy and John Geary, UCD)