31.10.2016.

Retail trade keeps stalling

According to the data of the Central Statistical Bureau (CSB), the 12-month retail trade increase at constant prices was only 1.1% (including 0.5% in September) in the third quarter, which is less than on average in the first six months. It indicates that retail growth is slowing down and this trend is intensifying.  

Analysing the retail trade data in more detail, we can see that the positive contribution of fuel trade in total annual retail trade growth was retained, yet growth in several other retail trade branches has not only slowed but even weakened. Year-on-year turnover has decreased for those retail businesses that trade in information and communication technologies.  Year-on-year and quarter-on-quarter turnover at constant prices dropped for those businesses, which primarily deal in goods related to home improvement, and even those businesses, which primarily sell food. That points to caution with which consumers spend their money.

The current retail trade dynamic is hardly surprising and the unlikelihood that the branch could resume growing fast in the near future was mentioned already in the second-quarter commentary, pointing out some aspects of consumer confidence and wage rises that were lower than last year.

According to European Union survey data, retail trade business confidence in the third quarter had deteriorated on average compared to the second quarter. Here we must take into account that this period included the reaction to the negative results of the United Kingdom referendum on the issue whether or not to remain in the European Union, thus adding to the uncertainty. A similar negative impact on the deteriorating indicator was had both the evaluation of the business activity in the previous three months and the outlook on the coming three months. In a breakdown by months, the optimism of branch entrepreneurs increased slightly in September as both of these positions improved and the assessment of stocks diminished.

In the coming months, rise in demand in some areas of retail trade could be impeded by the already topical rise in prices (e.g., for fuel and food). In the case of food, however, the rise in prices could have a slightly deterring impact on consumers turning to goods of higher quality. A positive impact could be expected from lending growth: if, for instance, mortgage lending picks up next year, the trade of goods necessary for home improvement could resume making a positive contribution. Yet the funds necessary for the initial down-payment and interest payments could decrease the rest of consumption.

The costs for retail businesses, on the other hand, could grow, reducing the profit margin*, which in the past two years has hovered around 3% on average, or reaching price rises.  Both the rise in oil prices and the risk that they could grow at a faster rate (in expectations of OPEC talks on the future of the oil market), might increase retail traders' concerns regarding the costs of logistics, deliveries and maintenance of points of sale. In addition, next year the labour attracting costs will grow again for those enterprises where there are more employees receiving minimum wage and in some regions, the growth of the trade branch (particularly in the case of smaller enterprises) could be impacted by the introduction of the minimum social payment for part-time employees. In small trade enterprises, particularly in rural areas, there could be less possibility to manoeuver with regard to working hours of employees.

The initiative regarding stopping retail trade in supermarkets on Sundays and holidays seems to be postponed, yet the aforementioned factors point to the likelihood that retail trade growth could not be faster than the slow growth characteristic for this year.  

 

*CSB data on profit and net turnover.

APA: Paula, D. (2020, 25. nov.). Retail trade keeps stalling. Taken from https://www.macroeconomics.lv/node/1865
MLA: Paula, Daina. "Retail trade keeps stalling" www.macroeconomics.lv. Tīmeklis. 25.11.2020. <https://www.macroeconomics.lv/node/1865>.

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