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Retailers forecast difficult six months

Supermarket checkout.
Supermarket checkout. Source: Priit Mürk/ERR

Retailers are predicting a difficult first half of 2024 as consumer confidence has slipped. The VAT rise is likely to further decrease revenue.

In November, retail sales fell by 9 percent on year while industrial goods fell by 12 percent.  Overall, revenue fell by 8 percent between January and November 2023.

Bank of Estonia Economist Rasmus Kattai said the large decline is the result of 2022's high reference base. In recent months it has slowed, he added.

"If we compare autumn retail sales volumes with those in the summer, they are down by about a percentage or two. This is a sign of chilled economic conditions. Even though people's purchasing power has improved, there has been a clear change in people's shopping behavior. The uncertain economic situation has led people to save more. As people save more, retail sales volumes suffer," Kattai told Tuesday's "Aktuaalne kaamera".

Rasmus Kattai. Source: ERR

Department store Kaubamaja's board member Erkki Laugus said the consumer confidence index started falling much earlier.

"Now we see that this index has also translated into real turnover. Usually, this change in turnover starts with durable goods, which is what we have seen this year. What's being bought for the longer term, whether it's appliances or electronics, sales of those things are clearly on a downward trend, and also home goods, which is related to higher interest rates on loans and the fact that people are putting off home purchases," he said.

The situation at the start of 2024 does not look optimistic for trade either.

"The first half of the year is still rather subdued for retail sales, because despite the fact inflation has slowed and purchasing power is increasing, the uncertain outlook means that people are more likely to keep a cautious stance, saving for the eventuality of, for example, losing their jobs. Retail sales will therefore also remain weak for another six months or so," Kattai said.

Tallinn Kaubamaja Source: Rene Suurkaev / ERR

"This year will be key. Those retailers who did not start to seriously deal with their stock levels and fixed costs last year may find themselves in serious difficulties this year, as the first half of the year is certainly not showing any signs of easing, quite the contrary. I think we are going to have one of the most difficult starts to the year in recent years," he added.

At the beginning of the year, sales will also be affected by the VAT rise, which will gradually affect store prices.

"Aktuaalne kaamera" spoke to supermarket chain Rimi about the situation.

Kristel Mets, CEO of Rimi Estonia said the price increase in Rimi started with dry ingredients, and will eventually reach milk and meat products. 

Rimi. Source: Ken Mürk/ERR

"The increase in VAT partially came in today, we increased the price on about 3000 items and now tomorrow or the day after tomorrow about the same amount more," Mets said.

"On about half of the goods we will not raise prices at all, and on others – 1 percent on some and 3 percent on others. This average price increase ranges between 1.7 and 2 percent."

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Editor: Barbara Oja, Helen Wright

Source: Aktuaalne kaamera

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