01.02.2018.

Retail trade experienced dynamic development in 2017

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The year 2017 can be considered quite dynamic for retail trade in Latvia.

Not only because the annual growth of turnover was higher than in 2016 (4.2% and 2.3% respectively), but also in terms of various activities observed in the sector. For example, the entry of new brands as well as the building of new shopping venues and the expansion of the existing ones.

Looking at the contributors to the retail trade development, one has to note the relatively steep increase in the average income of households. In the first three quarters of 2017, purchasing power, on average, continued to grow, albeit slightly lagging behind the average pace of 2016 due to inflation. Nevertheless, based on statistics coming from individual areas of retail trade, it is obvious that households are back to improving their homes, something that most probably was postponed for quite a long period following the crisis.

The contribution of retail trade businesses selling housing improvement and renovation-related goods to the overall growth of the sector was one of the most impressive in 2017, the same as that of trading in food products, particularly at specialised shops and especially in December. The former could retain its significance also this year, against the background of a healthy economic growth rate as well as the development of lending and new housing projects. At the same time, part of the specialised retail trade activities could develop more moderately this year and is unlikely to contribute to the longer-term food retailing development trends provided that one of the reasons for running those businesses could have been the differences in the excise rates in comparison with the neighbouring countries .

As regards this year's changes in taxation and their effect on the development of retail trade, they could shift the preferences of consumers slightly in favour of food products enjoying a lower value added tax (VAT) rate as of this January. We could, of course, hope that higher consumption of fresh vegetables and fruit will have at least some role to play in the strengthening of the foundations of our health care system. Nevertheless, it is rather unlikely that the changes in indirect taxes will have a major effect on that part of consumption that cannot be postponed or significantly changed (particularly as a consequence of minor adjustments in excise duties) or there is no will to do so (for example, consumption of fuel or tobacco products). From the perspective of retail trade turnover, what is saved on one item could be spent on another one, thus the effect on the overall retail turnover could be negligible.

January sentiment surveys show that the optimism of both consumers and retail representatives has increased since the end of the previous year. The views of the retail sector regrading a potential rise in employment within the next three months have also become slightly more positive. The situation could change even slightly more in the second half of the year with the opening of an IKEA store, as well as in 2019 when several major new shopping centres or their expansion projects will be completed.

Judging from the developments in 2017, businesses involved in retail trade can be expected to continue looking for new cooperation opportunities in the nearest future, at the same time also searching for better locations for their businesses, possibly in large malls offering other services in addition to shopping.

This combination as well as striking a successful balance between trading in a location that can be physically accessed by the customers and e-commerce will ensure the viability of trading businesses, albeit probably also making interpretation of trade data even more complicated. 

APA: Paula, D. (2018, 17. aug.). Retail trade experienced dynamic development in 2017. Taken from https://www.macroeconomics.lv/node/4041
MLA: Paula, Daina. "Retail trade experienced dynamic development in 2017" www.macroeconomics.lv. Tīmeklis. 17.08.2018. <https://www.macroeconomics.lv/node/4041>.
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