A slight contraction in retail trade in February, recovery of growth is expected in the future

In February of this year, retail sales volumes slightly decreased compared to February of last year (-0.4%), according to the latest data of the Central Statistics Office. The decrease was determined by a 1.5% decrease in the retail sales of non-food products, while the sales of fuel increased by 1.7%, while the sales of food remained unchanged compared to February of last year. In the first two months of 2024, the total volumes in retail trade decreased by 0.8%, and the sector is still waiting for an increase in the purchasing power of the population, as wage growth catches up with the previously rapidly rising price level.

Retail development over the past year can be divided into two periods. From March to September 2023, retail sales volumes were lower than usual due to high inflation and other factors affecting consumer spending, but in November last year, volumes increased, remaining at roughly the same level until February this year. However, comparing volumes in annual terms, positive trends are not really visible yet.

With the entry of Lidl in Latvia in 2022, competition in the industry has increased significantly. The large store chains had to think more about various discount programs to attract customers who started shopping at a lower price level in Lidl. Higher competition promotes both healthier market conditions and discourages chain stores from unjustified price increases.

The confidence index of retailers in Latvia compiled by the European Commission has remained at a consistently low level since July 2023, and in March of this year it is lower than in March of last year. In contrast, consumer confidence has been unevenly improving since the beginning of 2023 and is higher than in March of last year, indicating a moderate improvement in the financial situation of the population, which could further improve sentiment in the retail sector.

The data for March and April of this year are likely to show increases in retail sales, which will be determined by the low base in March and April 2023. This increase will also start to form an increase in the total volume of 2024 compared to 2023, which can be strengthened by the increase in the purchasing power of the population in the second half of this year, thus retail sales volumes could increase by 2-4% this year.

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