The retail sector reaches its economic peak – companies disappearing poses a future threat

The growth rates experienced before the financial crisis are now a mere dream in both wholesale and the retail sector, and growth was slower even during the economic peak of 2016–2017. The turnover in retail trade has continued to grow at a rate of around two per cent since the beginning of the year and is not expected to slow down during the second half. However, the growth will slow down to around one per cent over the next couple of years.

“Changes in purchasing power and employment are important signals for consumers. With increases in unemployment, households often start to save money ‘just in case’, which may accelerate the downwards slide,” says Jaana Kurjenoja, Chief Economist at the Finnish Commerce Federation.

Wholesale trade already passed its economic peak last year, and growth in the sector over the first half of the year has been based on the increase of wholesale prices – turnover volumes have already decreased slightly. Although growth has ceased in residential construction, other construction sectors and new orders from the industrial sector have improved wholesale trade and will continue to support it next year, so turnover volumes are not expected to decrease significantly.

“However, if economic growth, industrial production and export continue to slow down, it will also affect domestic wholesale trade,” Kurjenoja notes.

Even though turnover has continued to grow in the retail sector, employment has been decreasing since the beginning of the year. This is a part of the structural changes in commerce, as international and domestic competition create a need to improve the efficiency of operations while the ageing of the population and urbanisation are changing the operating environment.

“Increased turnover in the commerce sector no longer means that employment will increase as well. Digitalisation and automatisation allow the improvement of both cost competition and customer service,” Kurjenoja explains.

Number of companies in the commerce sector to decrease, domestic specialty goods trade at risk

Fewer and fewer companies have been founded in the commerce sector in recent years. The development is visible in the number of young companies with a history of under five years, especially in wholesale and specialty goods trade.

“It’s worrying because new companies and ideas keep the sector vibrant. They have significantly enhanced the growth of retail business in the past few years,” Kurjenoja says.

The developments are slowly becoming visible in the corporate structures and employment of the commerce sector, and even the urban landscape. The changes are indicative of larger trends: the ageing of the population, urbanisation, international competition and digitalisation, as well as long-term economic growth.

The Finnish Commerce Federation predicts that by 2030, Finland will have lost more than one fifth of its retail businesses, with the worst-case scenario estimated at 40 per cent. Specialty goods trade will be especially affected. A very similar prediction about the disappearance of retail businesses has been made in Sweden, but there the situation of specialty goods trade is viewed as even gloomier. In both Finland and Sweden, one of the greatest threats to specialty goods trade is the growth of foreign digital trade.

“It’s no wonder the Swedes are afraid of Chinese online stores and Amazon arriving in the Nordic countries. Usually Amazon has quickly taken over the consumer market wherever it has established itself in the Western countries,” Kurjenoja says.

Strong need for a survey into the future of the commerce sector

“The structural changes and digital revolution of commerce have been talked about for a long time, but they are also becoming increasingly visible in the results and forecasts. This must be taken into account in the decision making on both national and EU level,” says Mari Kiviniemi, Managing Director of the Finnish Commerce Federation.

The Finnish Commerce Federation is particularly worried about whether trade will be able to offer employment opportunities in the future. Commerce is the largest employer in the economy and by far the largest employer of young people. It comprises ten per cent of Finland’s GDP. However, the sector has to deal with extreme international competition.

According to the Finnish Commerce Federation, domestic trade should not be subjected to any additional obligations or regulations that do not apply to foreign trade. In addition, monopolies should be abolished to improve the efficiency of the sector. Domestic brick-and-mortar and wholesale trade are also hindered by heavy cost structures while the price competition takes place on the international market. The cost burden must absolutely not be increased by different taxes or additional regulations. In addition, labour supply must be ensured and employment-based immigration must be increased.

The Finnish Commerce Federation considers it especially important to set up a key project to support the digitalisation and internationalisation of companies in the commerce sector and the other service companies around them.

“The Government’s decision to prepare a report on the future of the commerce sector during the electoral term is essential, as it may open up possibilities for the strategic, long-term development of the field. However, the work of independent specialists needs to be started immediately,” Kiviniemi says.

*Turnover adjusted for price fluctuations

Further information:

Jaana Kurjenoja, Chief Economist, Finnish Commerce Federation, jaana.kurjenoja@kauppa.fi, tel. +358 (0)40 820 5378
Mari Kiviniemi, Managing Director, Finnish Commerce Federation, mari.kiviniemi@kauppa.fi, tel. +358 (0)50 511 3189