The real impact of the transformation in commerce is becoming evident. International and domestic competition, streamlined operations, automation and digitalisation are changing business structures. With this transformation, increased turnovers do not necessary translate into new jobs. In fact, the approximately 2 per cent growth in turnover, as estimated by the Finnish Commerce Federation, will not be sufficient to sustain the current employment in wholesale and retail businesses.

There are currently many forces at work in the commercial sector. Under stiffening competition, retailers and wholesalers are forced to seek improved efficiency and cost savings, which will ultimately benefit b2b customers and private consumers alike.

In specialty and daily consumer goods trade, Finnish and international chains and units have the economies of scale on their side in purchasing and logistics, which also give them a competitive edge against international online trade. In this competition, small Finnish retailers are facing major challenges unless they operate with a certain niche or can offer specialist expertise.

Retail trade, industry and construction aim for cost-efficiency by cutting the supplying chain and the number of intermediaries. Goods and services are purchased to an increasing degree directly from manufacturers and suppliers, bypassing Finnish wholesalers and importers. Fully automated warehouses are located where it is most expedient in terms of cost level, customer base and logistics, including Southern Sweden, Poland or the Netherlands, which poses a challenge for Finnish wholesale trade.

“With digitalisation and globalisation involving consumers, companies as well as purchasing channels, commerce is undergoing a transformation, the outcomes of which are very difficult to predict. For example, the construction industry has been experiencing a massive boost since 2015, and yet the growth in hardware store sales remains sluggish at close to zero,” says Jaana Kurjenoja, Chief Economist for the Finnish Commerce Federation.

No growth spurt in sight

While the economy is growing more briskly than in a long while, in commerce the growth figures are nowhere near to those witnessed in the late 1990s and early 2000s. According to the predictions of the Finnish Commerce Federation, the turnover volumes* in retail are expected to grow by nearly two per cent this year, after which the growth will slow down to one per cent next year.

“At the moment, household debt and tax breaks are encouraging private household spending. Next year, purchasing power can only grow through a higher employment rate, while consumers’ uncertainty about rising interest rates will have an impact. It is likely that the growth in retail trade has peaked for the time being,” Kurjenoja says.

“We should also bear in mind that only a portion of private spending benefits the Finnish retail business. The largest single cost for households is housing.”

The turnover volume in wholesale trade is expected to grow by approximately two per cent in 2017 and 2018. Kurjenoja points out, however, that this forecast may prove too optimistic:

“Between January and May, the turnover volumes increased less than half a per cent. However, we are anticipating that the strong growth in industry and construction will also begin to show in Finnish wholesale trade towards the end of the year.”

The transformation is affecting jobs

In addition to international and domestic competition and digitalisation, one of the single most significant factors altering the course of development on the job market in the commercial sector is urbanisation: growth centres have customers and jobs, whereas in sparsely populated areas these are disappearing.

On the one hand, digitalisation reduces the demand for workforce but on the other hand, it creates a demand for new types of skills. However, recruiting experts has recently become more difficult both within the wholesale and retail sectors. For example in retail, 14 per cent of the specialist positions open in January–June 2014 were filled, while this year only 7 per cent were filled.

“Responding to competition requires efficient operations, and some companies are unsuccessful in this. As a result, some of the jobs are lost,” Kurjenoja explains.

According to the Finnish Commerce Federation estimate, the employment rate in the retail sector will decrease by one and a half per cent this year and by one per cent next year. The employment rate in wholesale trade is also expected to decrease by one per cent.

Traditional business subsidies are ineffective

Policy-makers need to do more if they are to create favourable conditions for a viable service sector driving growth. Everything begins with training.

“No matter how much we invest in mathematical and scientific disciplines, how will we ever be able to build a service economy if we don’t understand and value the consumer?” Kurjenoja ponders.

The Finnish Commerce Federation finds that higher-education institutions should focus more resources on international programmes and modules on consumer science, marketing, product and service design and other similar
subjects.

In addition, public funding projects and subsidies should be directed towards the development of service sector ecosystems, where different service providers and customer companies could work together. At the same time, collaboration with trade would help improve the skills and competences among service providers and would also prepare them for international competition.

The role of sole entrepreneurs in boosting the viability of trade sectors is still often overlooked. In the future, sole entrepreneurship will, however, provide a major route for employment alongside traditional employment relationships. To encourage sole entrepreneurship, the threshold for VAT taxable turnover should me raised substantially and the abatement system abolished. This would reduce administrative costs, errors and unnecessary work.

According to Kurjenoja, traditional aid and subsidies for businesses and entrepreneurs are not the way forward when building an efficient and internationally competitive services sector. “We need versatility in training, collaboration between different companies, projects supporting internationalisation and tax incentives.”

Further information:
Jaana Kurjenoja, Chief Economist, Finnish Commerce Federation, tel. +358 (0)40 820 5378, jaana.kurjenoja@kauppa.fi

* Turnover volume is the value of turnover adjusted for price fluctuations.

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The Finnish Commerce Federation represents commerce—the largest sector of economic life. Commerce employs around 300,000 people in Finland. The Federation has around 7,000 member companies and represents both retail and wholesale commerce in industry policy and labour market lobbying. www.kaupanvuosi.fi.