The deregulation of opening hours seems to have increased sales, particularly in grocery and department store trade. This trend was not reflected in specialty goods trade. However, the positive development in retail trade is expected to end next year, with the growth close to zero. Rises in indirect taxes would suppress the newly-found feeble growth.

The deregulation of opening hours has increased the growth of retail trade. According to a survey by the Finnish Commerce Federation, the value of turnover decreased by more than two per cent in grocery trade and by more than three per cent in department store trade in January–May 2015. This year, turnover has increased in both trade categories, despite the fierce price competition in the food sector. Grocery stores and department stores are the sector that has benefited most from the new opening hours.

The extended opening hours and new shopping days have also increased the number of employees and working hours. The number of employees in retail trade increased by 2,500 year-on-year during the first six months following the change. However, the number of entrepreneurs in the retail business has decreased, as has the number of hours worked by them.

“This decrease is due to the challenges facing entrepreneurs in specialty goods trade and the transformation of the grocery trade market. In the past, small shops and kiosks that are often led by entrepreneurs could use the regulation of opening hours to their advantage. Now, entrepreneurs are working less, and the need for staff and extra hours is increasing in supermarkets,” Jaana Kurjenoja, Chief Economist at the Finnish Commerce Federation explains.

The slow growth will slow down further next year

In addition to the new opening hours, the slightly improved growth in purchasing power will make retail trade grow faster this year. However, the growth rate is expected to remain moderate. In 1995–2008, the average annual growth in the sales volume* of retail trade was close to five per cent, and the Finnish Commerce Federation forecasts that it will remain at about one per cent this year.

Next year, the purchasing power of consumers will stop growing and the growth of retail trade will fall to approximately half a per cent.

Construction drives up wholesale trade. The Finnish Commerce Federation forecasts that the sales volume will grow by 2 per cent in 2016 and 2017.

“Without the government’s promise of income tax concessions, the purchasing power would be lower and retail trade would turn negative again next year. The current growth forecasts rely heavily on employment. If the employment rate remains at its current level in the economy, the growth of retail trade might not be achieved,” Kurjenoja says.

Employment worries are not the only shadow over commerce – also taxation policy vexes the sector.

The risk is that the government will finance the income tax concessions by increasing indirect taxes. This would cut down purchasing power, impose more taxes on Finnish services, and bring more costs for commercial operators in all parts of the supply chain,” Juhani Pekkala, the Managing Director of the Finnish Commerce Federation says.

Increases to value-added tax or excise taxes would also result in substantial administrative costs in the retail sector, which is something politicians often ignore. For large retail chains, the costs of adopting new systems and applying new price tags after tax increases could be hundreds of thousands or even millions of euros.

“Of course, the costs are not as high at smaller specialty goods shops, but considering the size and profitability of the business, they could turn out to be critical,” Pekkala says.

Specialty goods shops that operate in the domestic market are in the weakest position

The forecast by the Finnish Commerce Federation also includes an analysis of different companies and their ability to survive the transformation of commerce.

In recent years, the most successful companies in specialty goods trade were those that know how to operate in the international market. Often, these companies have their own contacts and channels for buying goods, and they do not use wholesalers or importers as middlemen. The problem is that over 90 per cent of the companies in specialty goods trade are micro enterprises with less than 10 employees and an urgent need for more international expertise.

“Specialty goods trade is the sector that would benefit the most from public investment in international commercial expertise, for example, through Tekes. However, there seems to be a general neglect for the importance of commerce – the largest employer in the economy – and no major investments are made in retail expertise,” Kurjenoja wonders.

Another problem is that industrial policy tends to support existing structures, i.e., the production of capital goods and investment goods. Consumer goods are not part of this picture, and politicians do not see commerce as a potential export channel for Finnish goods. Only a few per cent of all retail businesses export their products.

According to Juhani Pekkala, promoting a versatile economic structure should be the primary objective of our long-term industrial policy, regardless of the current government structure. Important focus areas that would deserve more attention in higher education include consumer intelligence, product design, marketing and commercial expertise.

“Unfortunately, the recent decisions on, for instance, cuts from education programmes in commerce and services, are taking us in the wrong direction. Not only entrepreneurs, but also decision-makers should approach renewal with an open mind,” Pekkala says.

* Sales volume is the value of turnover cleared of price fluctuation.

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Further information:

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

Juhani Pekkala, Managing Director, Finnish Commerce Federation, t. +358 (0)400 419 560, juhani.pekkala(at)kauppa.fi

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.kauppa.fi

Members of Finnish Commerce Federation can view the entire Sales forecasts research material at Kauppa.fi > Members