Retail and wholesale trade in rough waters

Photo: Pilseta24.lv

Retail and wholesale trade in brief:

• retail and wholesale amounted to 17.4 % of GDP in the  3rd quarter of 2010.
• total turnover of retail companies in Latvia (in comparable prices) was 3.7 billion EUR (2010);
• turnover of wholesale companies in Latvia was 12.5 billion EUR (2008);
• since 2004 the largest retail chain in Latvia is Rimi Latvia;
• there area about 450 internet shops in (2009).

The last five years were a period of extensive changes in the trade sector – turnover in the sector experienced rapid rises and falls, and was affected by the global crisis.

It is too early to speak of a  recovery of demand in the domestic market, a new "breakthrough" is not expected. Demand is impeded by tax rises, high import prices, inflation forecasts and outstanding liabilities of citizens to credit institutions.

Wholesale trade

• In Latvia wholesale trade data are registered every five years and according to the latest data net turnover in current prices of wholesale companies in Latvia in 2008 was 12,5 billion EUR. The largest percentage comprised of companies, with their main business in wholesale trade in motor fuel, as well as other solid, liquid and gaseous heating fuels.
• Separate research on the largest food wholesalers in 2009 was conducted by the business newspaper Dienas Bizness (Db, 10.11.2010) – showing estimates  that the 25 largest food wholesalers had a total turnover in 2009 equal to almost 569 million EUR 24% lesser than in the year-earlier period. Industry representatives predict the consolidation of market participants in the near future, since presently the food wholesale market is too fragmented.

Retail trade

• Retail trade in Latvia has experienced sharp ups and downs. In  2007 annual growth of retail trade was the most rapid in the European Union, but since the middle of 2008 it has been experiencing a slump. In 2010 retail trade in Latvia stabilized, as a result of the gradual recovery of the national economy.
• In 2010, the total turnover of retail companies in Latvia was 3.7 billion EUR, almost the same as in the year-earlier period.
• At the top of the ranking of the largest retail companies in Latvia there are strong players with foreign capital, which mostly compete with each other. For many years they have also been food retail traders.
• Since 2004 the largest retail trader in Latvia is a Scandinavian company, Rimi Latvia (107 stores), in second place – Lithuanian Maxima Latvija (earlier: VP Market). 2010 can bring changes in the ranking, since according to the first half year data, Maxima Latvija (130 stores) will probably become the largest retail trader for the whole. The total market share of both companies is about 60%.
• The ten largest shopping centers in Latvia, according to their own estimates, had a turnover of 441 million EUR in 2009, a decline of 32% from  2008. The largest shopping center in terms of turnover and number of visitors is Alfa.
• Since the beginning of 2010, the turnover of second-hand shops has been consistently growing. 
• In June 2011 as compared to June 2010 the total retail trade turnover has increased by 5.4%, according to calendar adjusted data . 3% volume increase can be observed in food commodity group, whereas retail trade of non-food products has grown by 6.7%, excluding retail sale of automotive fuel – by 12%, according to CSB data. In comparison to the corresponding period of the previous year, retail trade turnover at current prices (not taking into account influence of calendar days and prices) has risen by 10.2%.
  Latvian Bank experts indicate on the overal upward tendency in retail trade data. This upward dynamic is determined by several factors. The increase in consumption is fostered by the gradual rise in employment, as the segment of the population with steady income and a greater sense of security regarding the future expands, which often signals greater expenditure. Sales volumes and structure are affected also by postponed consumption, i.e. the spending of previously accumulated savings, particularly when purchasing durable goods. A rise in the average salary has also been observed lately, yet any improvement in purchasing power is limited by the inflation resulting from tax raises and the rising global prices (especially food).

E - commerce

• According to data from the Internet Association of Latvia, in 2009 in Latvia there were about 450 internet shops in Latvia in 2009. It has been estimated that the 15 largest internet shops in Latvia had a total turnover equal to about 21 million EUR in 2009. In the second half of 2009, 27 million visits were recorded to the product catalogues accessible in the internet shops and the  salidzini.lv price comparison website. Like before, the most frequently purchased items on the internet are air tickets and electric household appliances.
• In general the situation with internet shops is not easy –as estimated by the association, turnover of the largest internet shops in Latvia has decreased by 40% in 2009 from 2008, and only a few companies worked at a profit.
• According to Dienas Biznesa data, the e-shop leaders in 2009 were www.1a.lv, www.xnet.lv and www.220.lv.
• E-commerce sources consider that the average mark-up on cost of goods on the internet to be 3% –10%.
• In 2009 many internet shops were said to have changed their owners as a result of  having delinquent debts to suppliers. and without changing the name of an e-shop, the same people offered their services under another brand name.

Factors affecting the industry

• Insolvency administration experts have concluded that the retail trade companies affected by the crisis should be included in the list of risky industries. The purchasing power of the population has not increased, and it cannot be excluded that some companies in the trade sector will terminate their activities.
• Traders were substantially affected by the decision adopted by the government in 2009 to increase the value-added tax rate from 18% to 21%. In 2011 this tax rate has reached 22%.
• There is some belief that the growth of retail trade is largely due to money from the "shadow" economy where salaries are paid outside the tax system. With the government setting combating the shadow economy as a main priority for 2011-2013, there is some concern that this could cause a drop in the turnover of companies in retail trade. Such efforts can also affect the wholesale trade, causing an increase in payment for goods in cash.
• The Ministry of Finance predicts that the increase in turnover of retail companies will be  stimulated by the gradual impro­vement of employment indicators and increases in average salaries.

Total turnover of retail companies in Latvia*, billion EUR

Changes of total turnover of retail companies in Latvia*, % vs previos period 

The largest retail companies in Latvia (2009)

Useful links

• Latvian Traders Association
• Latvian Chamber of Commerce and Industry
• Latvian Building Materials Traders Association
• Latvian Fuel Traders Association
• Register of Latvian companies legal and contact data