Positive year overall for retail; labour shortages, traffic, and unequal tax practices touted as concerns

GRTU Malta Chamber of SMEs’ end of year Business Performance Survey indicated an overall positive year in general, with eight out of ten respondents reporting a positive or neutral increase in their total sales when compared to the previous year.

Nonetheless, labour shortages were once again found to be the topmost concern, with the direct result of slowing down business growth, fuelling higher labour costs.

32% reported that their business was more profitable when compared to the previous year, with 46% saying profits remained the same, an 22% saying they got worse.

The survey was carried out amongst 250 business owners during the first half of January.

51% reported an increase in sales by up to 30% or more, 32% remained the same, and 17% saw a decrease in sales by up to 30% or more.

When asked what they felt were the main reasons for that led to an increase in their sales over the previous year, 65% touted the introduction of new services, the increase in population and consumption, better consumer spending power, and an increased market budget as the primary contributors. Split individually they accounted for 19%, 17%, 16%, and 13% respectively.

Inversely, increased local and foreign competition was the perceived primary reason for a decrease in sales over 2017, followed up by an increase in costs, illicit trading and unfair competition, and sales lost to online shopping at 15%, 13%, and 13% respectively.

The various types of enterprises were mostly equally distributed amongst their respective sectors, although there were overlaps, with the exception of local production and manufacturing, and exporting, which held 7% and 2% respectively.

The other areas of activity included retail, services, business to business, business to consumer, distribution and wholesale, and importing.

With 65% of respondents saying that staff turnover was “not applicable – no employees” to “occurs but considered normal”, this was not seen as a major issue, particularly because only 20% said that their turnover was either “very high/continuous” or “high”.

Increased online presence

Interestingly, online only stores made an appearance in this year’s survey, and on top of that there was an increase in businesses selling online from 18% in 2017, to 30% in 2018.

The overwhelming majority (73%) of businesses that conduct sales through their website saw up to 10% of total sales being made on their online portals, leaving the other 9%, 2%, and 9% totalling up to 25%, up to 50%, and more than 50% respectively.

The remaining 7% made all their total sales through their website as they were exclusively online businesses.

When the businesses who do not sell online were asked why they do not take advantage of the medium, the two leading reasons were that their products/services could not be sold online, and that their clients do not buy online (33% and 17% respectively).

Festive season and Black Friday

49% of those whose turnover is affected by the end of year festivi- ties were satisfied or very satisfied with the 2018 end of year season with 26% reporting higher turnover when compared to the same period a year before. 21% were not satisfied and 29% were neutral.

The week leading up to Christmas day and Black Friday seemed to have been, by far, the busiest for businesses, followed by the 23rd and 24th December, and the week of the 24th to 28th December.

Business owners felt that brand loyalty, more consumer spending power, offers and discounts and social media marketing were positive factors this season, while increased local competition, online shopping, traffic and parking facilities and unfair trading contributed negatively to their going of business during the festive season.

Looking back at the whole season, 63% said that Black Friday had not impacted turnover, neither positively or negatively. Although, 22% did note a little addition to the overall yearly turnover.

47% left no answer when asked what percentage of sales was made by foreigners this festive season, with the other categories noting sales made by foreigners up to 10%, 25%, 50%, and more than 50% standing at 26%, 18%, 5%, and 4% respectively.

Future expectations

41% of the respondents are expecting a better 2019 for their businesses, with 50% expecting this year to be as last year and 9% expecting to fare worse. 28% plan to keep their business in the same size as it currently is while 27% are planning to expand their business in Malta. 6% are looking oversees for their business expansion this year.

10% intend to set up their ecommerce website. 5% are planning to downsize their business, 6% planning to pass over to next generation or third parties and a further 1% are planning to close down.

Tax, labour, and traffic Issues

Labour shortage remained the topmost unresolved concern among businesses, closely followed by increased local competition, increasing labour costs, and increasing costs in general.

Differences in how local and foreign owned businesses are taxed were also noted as an issue for business owners.

As the system stands, local companies adhere to a 35% corporate tax rate, but foreign owned companies end up paying 5% tax on their revenue as 30% of their income tax is refunded, solely by virtue of being foreign owned.

The recent Satabank controversy also exposed a problem being faced by foreign workers where they are finding it increasingly difficult to open bank accounts in Malta, particularly to open an iGaming venture.