The number of persons employed in commerce decreases

According to a forecast of the Finnish Commerce Federation, the purchasing power of households will improve towards the end of the year and next year, but the slight growth in private consumption will not be directed to domestic retail trade. The increased interest rate is eating away at the consumption opportunities of households, both directly through mortgage debt, the financing considerations of housing companies and investment and consumer credit, and indirectly in the prices of products and services.

The rate of increase of prices and costs is close to reaching its peak: the prices of raw materials and energy have decreased, there are no longer any significant problems related to availability and food price inflation has started to slow down as well. However, the price of food still remains above the level of 2021 due to the permanently increased costs.

“Approximately half of the prices without VAT in the retail sector are the shop’s own and the supply chain’s indirect labour costs. Expensive salary solutions permanently raise the cost and price level,” says Jaana Kurjenoja, Chief Economist of the Finnish Commerce Federation.

Last year, the retail sector sales volume decreased by 3.6 per cent, and the Finnish Commerce Federation foresees a decrease of roughly the same amount for this year. While the decline in the retail sector sales volume will come to a halt next year, little growth is to be expected.

Consumers’ caution is reflected especially in specialty goods trade

Foreign e-commerce, the slow growth of consumers’ purchasing power and the high cost of housing and food are hurting the outlook for specialty goods trade in particular. The major sectors in specialty goods trade are particularly affected: hardware, household technology, interior decoration and sporting goods trade.

“Consumers are now avoiding buying durable consumer goods that they can buy later or which they already purchased during the pandemic,” says Kurjenoja.

In the fashion trade, i.e. clothing and footwear retail trade, both the turnover in EUR and the sales volumes have been increasing for a couple of years already, and the price development has been moderate. The end of the pandemic and the favourable climate for the clothing trade have accelerated the development, while the rise in prices has been kept in check by the extremely fierce international price competition.

“While the recent developments have been positive for fashion trade customers, foreign price constraints and the growth of domestic salary, leasing and financing costs pose a problem for the profitability of the clothing specialty goods trade,” says Kurjenoja.

Retail sector employment on the decline

The pandemic momentarily boosted demand for labour in the retail sector, but already in the second half of last year, employment returned to its earlier downward trajectory. In 2023–2024, low demand and fierce international and domestic cost and price competition will reduce employment in the retail sector by 3–4 per cent from 2022. This will reduce the number of employed women in particular.

“Commerce is responding to cost competition by cutting costs and reducing labour, refining supply chains, automating and digitalising operations and transferring investments,” says Kurjenoja.

As demand and, thus, the need for labour have decreased, the worst shortage of skilled labour has also eased slightly in both retail and wholesale trade. However, the shortage is not yet fully over and still poses a problem especially in the Helsinki Metropolitan Area and the largest growth centres.

“The Government Programme includes many objectives worthy of support that will certainly streamline the functioning of the labour market and contribute to the development of employment. These objectives have also been promoted and supported by the Finnish Commerce Federation. However, it is important that the details of the reforms also account for consumer services and their employment,” says Mari Kiviniemi, Managing Director of the Finnish Commerce Federation.

Commerce investments on the decline

Between 2015 and 2021, all commerce investments increased by roughly 45 per cent but fell sharply last year, and the decline will continue. Particularly worrying is the fact that, last year, investments in research and development were only 4 per cent higher than in 2015.

Kiviniemi is concerned about the impact of investments development in commerce on the competitive strength and future of domestic commerce. Without support, especially small and medium-sized enterprises in specialty goods trade do not always have enough competence and resources even for the initial stages of digitalisation, let alone for succeeding in the international markets.

“The commerce sector has difficulties in finding support for its development programmes. This has also been noted in the OECD, which has encouraged Finland to diversify its innovation ecosystem and also to involve SMEs,” says Kiviniemi.

From the point of view of research and development projects in commerce, Business Finland’s programmes and funding play a key role. Both of these should be further improved to support the digitalisation of commerce and the development of competitive and low-carbon consumer services.

“This is also important for the sectors operating in close proximity to commerce, as investments in commerce create growth, especially for domestic business services, industry and construction. Unfortunately, it seems that only domestic construction’s share of this growth has increased in recent years,” says Kiviniemi.

*The sales volume is the inflation-adjusted turnover.

Appendix: Commerce sector outlook II 23, eAppendix

Further information:

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

Mari Kiviniemi, Managing Director, Finnish Commerce Federation, tel. +358 (0)50 511 3189, mari.kiviniemi(at)kauppa.fi