OREANDA-NEWS. February 03, 2009. Latvian economy is facing rapid decline, the leader of which is the retail trade sector. During the last months of 2008 the retail trade returns declined by almost 15% comparing to the previous year’s data. Unfortunately, the decline tempos of retail trade returns grew also in December, despite the overall rush before the New Year’s Eve celebrations, reported the press-centre of Latvijas Krajbanka.
 
Usually the holiday rush has allowed the retail traders to increase turnover during December, especially the vendors of food, cosmetic accessories and clothing. Nevertheless, the degenerated economic situation dictates its terms, and, when comparing to the decline dynamics during previous months, the food product companies incurred a little bit less decline of the returns.

We have to note that the buyers` activity in December was stipulated by the expected tax increase: people were trying to manage to buy more expensive goods and to ensure themselves with provisions of separate food and household product at the old prices. Though this also didn’t help to improve the December statistics. In general the retail trade returns in December declined by almost 17% comparing to the last month of the previous year.

We have to consider the fact that during the boom of Latvian consumption-oriented economy the retail trade showed incredibly high increase. Therefore it is no surprise that with the decline of consumption and with the economy entering recession, this sector is the biggest sufferer. Together in 2008 the retail trade decline reached 8.2%. Unfortunately, there is nothing denoting on the increase of returns in the sector during 2009. Most probably the decline will last and will exceed double figure.

The main reason of which will be the said decline of consumption. During the last year a part of residents limited their expenses due to the expectations that their financial situation would deteriorate substantially. Unfortunately, this year a growing number of people will feel the economical decline effect in their wallets. This will happen due to the decline of income in families, purchasing capacity and also due to the lost of jobs.

It is important how the retailers will act in such a situation. There is no surprise that several groups of products still have inadequately high prices, also including separate food products, household and hygiene goods, not to mention clothing and footwear. It would be logic if with decline of consumption the entrepreneurs had revised their price policy and declined the mark-ups where it really possibly, thus limiting the decline of returns.

Unfortunately despite the fact that the consumption decline is being observed already for almost a year, the entrepreneurs don’t hurry to reduce the inadequately high mark-ups. It is interesting that some vendors also managed to use the recent increase of VAT rate to raise price to their assortment more than the tax increase has “required”. Such a policy cannot be lasting: Latvian residents are evaluating their expenses deliberately, choosing cheaper alternative or restricting the consumption of product at all if the price is too high.