If we want to lift consumer confidence, we have to stop creating a negative backdrop. News of war, of people becoming poorer, of investment leaving Estonia and companies struggling does not bring people in to shop. Even when the wage level would allow it and home-loan interest payments are coming down a little, the prevailing negativity in Estonia leads people to keep postponing spending. Lithuania is not objectively in a better geopolitical position than we are, but its economy and consumer confidence have lifted their nose upward and the Lithuanians have grabbed the title of the Baltic tiger for themselves.
That is why the primary goal of this year's Retail Annual Congress is to get Estonian retailers to lift their noses too. Despite two years of falling sales, despite money still being expensive and despite consumers' habit of looking past every price tag that is not yellow. The retail sector knows how to create and sell emotion. Let us set ourselves a community goal for the coming year: sell Estonians belief in the future once again.
That positive drive cannot, of course, happen with our eyes closed to where we currently stand. The year 2024 has brought significant challenges to the retail sector across all segments. Taxes have risen and will rise further, sales are falling, employees' wage-growth expectations for the coming year are around 10 percent, while companies' ability to deliver is at best half that. The most expensive European regulations have not even taken effect yet, and Chinese online platforms are forcing their way onto our market with unfair competition.
Despite all this, retailers' mood is not bleak; they are investing in the belief that, at least a couple of years from now, the economy will tilt its nose back upward. Most have managed to retain their staff, and there is a choice of candidates for new hires. Energy prices have come down, and according to the banks Euribor will be back to 2 percent next year. Since other sectors have also held on to jobs, baseline consumption is still there. If industry can restore exports and retail can sell good emotions, there is hope of publishing more cheerful news in 2026.
Domestic consumption and purchasing power
Business and consumer confidence in Estonia is currently lower than in the rest of the Baltics, Finland and Sweden. Domestic consumption has been declining for two and a half years already, and retailers do not see the decline ending in the first half of 2025. Although economic analysts have spent the past year predicting both consumption and confidence to rise, that has yet to happen. The biggest turnover declines are outside the major hubs (Tallinn and Tartu), where sales volumes of food and essentials have fallen by 5–10 percent.
Pre-Covid purchasing power will be reached in Estonia in 2027 at the earliest, because wages have not grown at the same pace as prices. A drop of a couple of percentage points in Euribor would help middle-class consumption recover.
Shopping centres
Footfall in shopping centres is generally declining in Estonia, but the picture is mixed. About a third of centres have seen turnover rise slightly, providing motivation for the retailers who are still investing in renovating and refreshing stores this year. Two thirds of centres, on the other hand, have seen turnover fall. As always in a crisis, the weaker ones struggle and the stronger ones grow market share.
In the retail real-estate market, there is also a trend of foreign investors pulling back from Estonia and selling their stakes. That is an opportunity for local investors, whose tolerance for geopolitical risk is higher. New business centres have opened this year too, although in smaller volumes than in previous years. Shopping centres are continuing to expand, and renovation work is being done, including the introduction of smart-building solutions that will deliver resource savings in the future.
The grocery market
The grocery sector did not see signs of improving purchasing power over the summer. Sales volumes have been on a continuous downward trend since the spring of 2022, and the share of promotional sales has grown to 50 percent. Retailers and domestic producers are trying to hold prices steady, because consumers cut back on purchase volumes when prices rise. Employees' wage-growth expectations are around 10 percent, which is beyond the means of many retail chains.
Investment has not been abandoned, however; necessary renovations and other strategic, future-cost-saving improvements continue. Non-essential investments are being analysed thoroughly and put on hold where possible. Grocery retailers have opened new stores again this year, but they have also closed unprofitable ones.
The construction sector continues to decline
Sales of building materials are in a steep decline for the second year in a row. A drop of 5–15 percent is forecast for this year, similar to 2023. The low number of building permits points to a contraction in the construction sector, which is reflected in retailers' sales volumes too. Seasonal sales offer some relief to those whose product range includes them, but generally a tough autumn and winter lie ahead.
Inventory is a vulnerable spot
For those retailers who were cautious and reduced their purchasing volumes in time, the current economic situation has provided a competitive advantage. Those who continued to keep stock at good-times levels are now in trouble and under pressure to clear inventory at a discount.
Regulations
The outgoing European Parliament and Commission have left behind a pile of regulations that, this year and next, will require retailers to make changes and investments. The deforestation regulation forces retailers to verify that no forest has been illegally cleared anywhere in the world to produce goods sold in their stores. Since the division of obligations between retailer and producer remains unclear, and the central IT system created to track product batches is not ready, retail associations across Europe have asked for the regulation's entry into force to be postponed by at least the end of 2025. In early October, the European Commission finally heeded the criticism and pushed the regulation's entry into force back to 2026.
The energy performance of buildings directive imposes wide-ranging obligations on retail real-estate developers, including creating bicycle parking for 10–15 percent of a centre's visitors and pre-cabling car parks for electric-vehicle charging infrastructure. The worry is that the contractor laying the electrical cables does not know what power capacity to plan for, and there is a risk that the cables installed will later have to be dug up and replaced. Likewise, the requirement to create a large volume of bicycle parking does not take into account the location of the centre or how many customers would actually arrive there by bicycle. The minimum requirements suit some, but for most they are far in excess of any reasonable need.
The due diligence directive and other sustainability reporting requirements oblige companies to verify the ethics and legal compliance of their suppliers' and partners' businesses. They mean larger companies will need to hire a dedicated person to compile reports and gather information from business partners. Medium and smaller companies will probably end up using consultants. The number of auditors sent "to the field" to inspect suppliers in foreign countries will undoubtedly grow.
Among the positive news, a law will take effect in summer 2025 making the issuance of paper receipts to consumers at the moment of purchase voluntary, provided the purchase can be identified later via a card payment or loyalty card. The Merchants' Association has been pushing for this option for some time, and at last it is happening. From January, there will also be rounding of 1- and 2-cent amounts to the nearest five cents on the total of the shopping basket, the aim being to gradually take the smallest coins out of circulation and reduce the cost of handling them. Both changes have a positive environmental impact by reducing paper and metal use.
Grocery stores can expect food-waste reduction measures and the need to ensure security of supply in a crisis through a network of crisis stores,
Within the Merchants' Association we are also working on various forms of cooperation with public authorities on reducing thefts, transport organisation and stopping points, cybersecurity requirements, packaging requirements, the textiles producer-responsibility scheme, and demanding equal competitive conditions from international e-commerce platforms.