Retail trade grows while parts of specialty goods trade were hit hard by the coronavirus – structural reforms bring more jobs to the branch
The coronavirus crisis gave a record-high boost to the sales of electronics, hardware and daily consumer goods in places, but many branches of the specialty goods trade suffered. Simultaneously, the loss of retail trade jobs has accelerated. The potential second wave of the coronavirus towards the end of the year could cut the predicted 2.5 per cent growth in retail business in half and speed up the loss of jobs. Bold and comprehensive structural reforms are called for to eliminate the incentive traps tormenting the commerce sector.
This year, growth in the hardware, home electronics and daily consumer goods trade in particular is boosting sales in the retail sector. Preliminary data indicates that many other household goods trade businesses have seen extremely high sales in June and July. Tax refunds paid in August and September will strengthen the purchasing power of Finns returning to workplaces from summer holidays and remote work, and this will give a boost to the outlook for early autumn.
The Finnish Commerce Federation predicts 2.5 per cent growth in retail sector turnover volume* this year, while the figure for last year was 2.3 per cent. Growth will continue at 1.5 per cent next year.
However, many services and specialty and household goods trade sectors were hit very hard by the coronavirus crisis. For example, year-on-year from March to May, clothing and footwear stores lost more than half of their turnover, opticians almost the same, jewellers slightly less than one third, and bookstores one fourth. It is difficult for businesses to recover from such figures.
Some companies have been forced to postpone or cancel their investment plans. Jaana Kurjenoja, Chief Economist of the Finnish Commerce Federation, is concerned over the impacts of such postponements on the efficiency and competitive strength of domestic specialty goods trade in the international market.
“Investments in digitalisation in particular play a key role in the specialty goods trade’s conditions for competition, and it will be utterly detrimental if these investments cannot be made now,” Kurjenoja says.
Fuzzy outlook for commerce, loss of jobs continues
The outlook for commerce is unclear. If COVID-19 gathers strength and spreads further in Finland and Europe in the autumn, movement will reduce and uncertainty grow, while unemployment will get worse and parts of it become structural. Saving will increase in households. Moreover, if the international recession in demand and investment continues, domestic industry and export of goods and services will suffer. This would aggravate the distress of consumer services even further.
“This could cut more than half off the growth in retail trade this year and stifle next year’s growth completely,” Kurjenoja estimates.
A second wave of the coronavirus would gravely affect employment in commerce, the largest employer in the business sector. Last year, 10,000 jobs were lost in the retail sector, and the predicted figure for this year is
13,000–14,000. If the epidemic gets worse in the autumn, up to 20,000 jobs may be lost in the sector.
The employment outlook for the next few months is quite poor in the specialty and household goods trade in particular. The outbreak of the COVID-19 pandemic last spring did not affect the daily consumer goods trade’s intentions to provide employment, but such intentions collapsed in household goods trade and have not been restored to the levels seen early in the year or last year.
The Finnish Commerce Federation emphasises the importance of preventing a second wave of the coronavirus epidemic. The work requires timely responses from the Finnish Government and the citizens must comply with the instructions issued. Determined efforts to ensure safe shopping continue in the commerce sector.
Speed up structural reforms
The coronavirus is not, however, the only spanner in the works of the economy and employment. As the dependency ratio weakens and the economy becomes more indebted, it is crucial that the conflict between basic security and incentives for work be resolved in the next few years.
Therefore, Mari Kiviniemi, Managing Director of the Finnish Commerce Federation, urges the Government to implement structural reforms swiftly.
Incentive traps have tormented the commerce sector for a long time now. Due to various overlapping income-based systems, it is not always profitable for part-time salespersons to take on additional hours of work or even transfer to full-time employment, if and when offered. The reason for this is that eventually, the salesperson will only get a fraction of the pay increase for more hours worked.
The current labour market support and earnings-related unemployment allowance combined with other systems create deep incentive traps at the income levels that, for example, salespersons have. These traps cannot be eliminated by fine-tuning individual forms of support. Instead, a comprehensive model providing an incentive to work, such as a basic salary, should be devised.
“A dedicated team of specialists should now be appointed in connection with the Social Security Committee, tasked with planning a model to replace the current income transfer systems. The work should begin with a genuinely clean slate, and the current systems and administrative structures should not be allowed to restrict it. In the same context, plans should be made for earnings-related unemployment security to be integrated as part of the whole,” says Kiviniemi.
“Such plans are urgent because long-term improvement in employment cannot be achieved without systems that provide incentives,” she concludes.
*Turnover volume, that is, turnover without price fluctuations.
For further information, please contact:
Jaana Kurjenoja, Chief Economist, Finnish Commerce Federation, jaana.kurjenoja(at)kauppa.fi, tel. +358 (0)40 820 5378
Mari Kiviniemi, Managing Director, Finnish Commerce Federation, mari.kiviniemi(at)kauppa.fi, tel. +358 (0)50 511 3189
Appendice:Commerce sector outlook 2022_030820
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 industrial policy and labour market lobbying. Kauppa.fi