Store area in Estonia reaches ceiling

Photo: Jaanus Lensment

Consumers hardly anywhere treated as nice as in Estonia, says Tallinna Kaubamaja group chief Raul Puusepp.

For quite a while, Estonian economic growth has been upheld by domestic consumption growing monthly. According to Traders Association and Tallinna Kaubamaja group head Raul Puusepp, this is due to several factors interacting, but cannot last for long.  

These past months, retail volumes have been vast. All summer months have been equal or higher, in sales, than the Christmas month last year. How normal is that?

December last year was out of the ordinary, somewhat, as there was not much of a winter and thus winter goods sold scarcely. But, truly, retail turnover has grown and domestic consumption is an important engine to economic growth. Wages are growing, but inflation is nonexistent – thus, people’s purchasing power is slowly increasing. And this is good, isn’t it.

On top of that, savings options are not attractive right now, as the banks pay low interests on deposits and other financial instruments are risky or complex. It’s another matter how long this can last. I think it will still be going on next year. Then, hopefully, the economy will again be balancing out, and other segments will again be providing their natural input into economic growth.

What’s the current situation as compared to boom times?

Now, the consumption is totally different from the boom time. Then, lots of purchases were made emotionally, hoping to make as much or even more money in the future; now, people are consuming very prudently. The buys are based on reason. There are the emotional buys as well, but mostly people buy quality – not for an occasion, but for a longer period of time. Lots of attention is paid to price and quality ratio.

Back then, there was quite a lot of easy money on the market, which also went easily into circulation. Today, the money is hard earned and it goes into circulation thoughtfully. Right now one could not blame people of consuming too much, thoughtlessly and daringly. In the boom times, the food may have indeed gone bad in the fridge, but not anymore.

Analysts have found fault that the only large investments and real estate development are commercial areas. What will the ever expanding store area mean?

For years it has been asked when will Estonia have too much of store area. I think the time has now arrived, more or less. Taking the shopping centres alone, we are European top level – only Norway and Luxembourg have more store area per inhabitant. Considering our purchasing power, this is not normal. This is the peak of the arms race.

I’d be very careful with these new developments which are being talked about and planned. Not in Tallinn only, but also in Tartu and elsewhere. Adding up the square metres discussed, the expansion would surely be too vast. But maybe it’s helped by the increase of entertainment in shopping centres, not just shopping space.

Not yet in the better locations and the larger cities, but in other places one now spots the empty spaces. No longer do merchants go along with every new development. Earlier, it used to be the thinking that everybody is going and I need to go as well, otherwise I’ll lose market [share]. Today, they know how to look at the Excel table to see what it means to open a new store, and how much minus it will bring. And they don’t go.

Also, there have been stores closed during these past five years. It no longer that someone builds a new centre and everyone is sure to come.

When will some food chain leave the market, at long last, so the super sharp competition will ease up?

I don’t know if anybody should leave. Competition isn’t bad – good for the consumer, and makes the merchant try harder. I don’t believe anybody will quit the market anytime soon.

Don’t you feel it’s already come to a phase where it is eating the profits?

It does eat, sure. When it comes to food stores in Tartu, for instance, it’s clearly oversaturated. They have very large hypermarkets there, which are surely earning very large losses. And it’s not much different in Rakvere, Paide or wherever.

At the moment, profit margins are very low for merchants – the profit is one to four percent of turnover. That will have to do for the investor, who wants to get something in return for the money put into his business, and the company which wants to invest and to develop. Retail is far from an easy and rosy thing to do. Winners are those who are able to sell better goods at fair prices, have better marketing and the latest technological developments, and think more client-orientated.

In Tallinna Kaubamaja group, we have Selveekspress and Partnerkaart cross-usage in order to lower numbers of staff, increase effectiveness, and make more pointed offers to definite clients.

How can one increase productivity in retail?

The greatest potential is in management – in the wisdom in planning. How the store and flows of goods are planned, how the supply chain is built up, which goods arrive when, when are they put on shelves. It’s a great miss for sales (department) if there are no goods in a store, or the desired goods are lacking or insufficient. 

This is a separate subject, what the assortment in our supermarkets is like as compared to those in Scandinavia or Germany. Consumers hardly anywhere treated as nice as in Estonia. Hardly, in Europe, will you find such a large selection of wines, juices, white and dark bread. This means our shelves are longer, the fridges more in number – these need to be purchased, maintained, areas expanded, while also dealing with the goods: analysing, planning, ordering, ordering some more … Every goods line needs to be administrated. That’s where the effectiveness goes... On the other hand, there’s the excess amounts of goods, deepening the minus.

What else would be «Estonia-specific» in retail?

In this regard, Estonia is a weird one. I don’t know of any other region or country where a very large part of the population could get in a car and be at a supermarket in ten minutes. Or in a department store, in an hour. But we have a store at every corner.

At that, anything from milk to a suit may be purchased from early morning till late at night. This isn’t the usual. But still it isn’t likely to change anytime soon as no market player dares to do the change first, losing clients. But that day will come.

How are merchants affected by the fast wage rise these recent years, and the politicians talking about fast rise of minimum wage?

There are two myths here. One is that in retail, the salaries are way below average. But the median and average pay are two different things. In retail salaries are near median. That’s quite a good result, and that’s the way it is elsewhere also. 

In retail, we just have lots and lots of these simplest jobs, and these come with that king of prices – nothing doing. There are very few in retail making the near-minimal money. Therefore, the minimum wage rising to a degree will not mean much problem for large retailers. But is does for small stores, and those in rural areas.

What the politicians are saying is purely elections talk. That’s not prudent and it has nothing to back it up. It feels like it’s a long time since they went to some rural area and saw how’s life over there. By this, a vital part of enterprise would just die out. While these promises are being fulfilled, tens of thousands of enterprises would be closing doors.

Have you also felt that Estonians are not willing to do the simple jobs anymore?

Not a big problem yet. The larger problem is the image – not pointing fingers, but how have we come to retail or simple worker image dropping to such lows? Is it because media abounds with critical descriptions of retail, or Estonia lacking higher retail/wholesale education, or some other things... 

Secondly, it is difficult to find staff, of course; but what is worse is that the people trained at the expense of the company do not stick too long at the job. Feels like diligence and duty are dropping fast. People are late for work, they leave at half working day, or they call to say they have left for Finland.