Expert warns 2023 will be a difficult year for retailers

The industry continue showing a shocking ability to oppose challenges – the year 2023 started out with confident growth in the retail trade sector, says Swedbank economist Laimdota Komare.
This, according to the economist, is because in the second half of 2022 and January 2023 high inflation continued lowering residents’ purchasing power.
In the winter months heating bills created additional pressure. The cost burden for residents has increased significantly, but even under these conditions residents continued shopping more actively than in the past. According to data from the Central Statistical Bureau of Latvia, in January 2023, when compared with the corresponding month of last year, turnover of retail companies increased by 20.4%. Sales volumes, according to inflation and calendar adjusted data, increased by 2.9%.

Sales of food stores continued going down

– compared with last year’s January, sales have gone down by 3.2%. Growth of 5.7% was observed in the non-food products sector. Salves of fuel also continued growing (+8.5%).
The drop in the food retail sector may be indicative of Latvian residents having changed their shopping habits due to the growing inflation. It is likely the increase living expenses and rapidly growing food product prices have motivated residents to save money on food. Food and non-alcoholic beverages compose the biggest portion of expenses for households. 23% of an average household’s expenses go towards the purchase of these goods.
Less wealthy families divert even larger amounts of money towards food. It is a major portion of expenditures, which is why this is where it is possible to find ways to save money. Some residents purchase less to save money, others pay more attention towards discounts. Some residents replace their usually bought food products with cheaper analogues.
The non-food market, meanwhile, seems more resilient in comparison. When a family’s financial situation gets worse, usually residents start saving money on goods and services that are not necessities.

This means there should be a drop soon in sales of non-food products, but there isn’t one.

On the one hand there is still the shadow of restrictions imposed for the pandemic still looming over everything. These restrictions had the biggest impact on sales of non-food products. On the other hand, there is still a rather large and still growing income inequality in among different residents in Latvia.
Inflation hits the least wealthy people the hardest. Wealthy residents, on the other hand, can afford not to tighten the belt by much. Drops were rare for non-food product groups in January. It is likely retailers continued growing sales at the expense of wealthier members of society. In the last couple of months there has been a slight recovery in sales of non-food products. Compared with autumn, residents bought clocks and jewellery less often. The same can be said for culture, leisure and sports-related goods, clothes and footwear.
In January and February residents’ overall attitude showed improvements. Residents were slightly more positive about the country’s economic development and their financial future. However, despite this slight improvement, the overall mood remains rather bleak. It is expected for Latvian households’ purchasing power to continue going down in the first half of the year.
This year will not be easy for retailers. Demand will likely remain weak the whole year. Some slow recovery is possible in the second half of the year, says Komare.
Also read: Latvia’s GDP grows by 2.0% in 2022