Survey of Greek SMEs: Retail Sector (September 2016)

As only ⅓ of the sector of retail SMEs operates efficiently, the restructuring that seems to be in progress needs to continue

After a decade of rapid growth (2000-2008), retail trade in Greece contracted by 5 per cent per year in terms of volume over the past seven years (compared with growth of 1 per cent per annum on average in the EU).  In addition, the number of SME retailers during the period 2008-2013 dropped by circa 30,000 stores, i.e. a cumulative decline of around 16 per cent.

As regards the short-term outlook for the sector, according to our survey, which was based on a questionnaire submitted to a sample of 300 retailers, the business climate in the retail sector looks weaker than the average for the SME sector in Greece.

Focusing on structural distortions, we single out three notable characteristics: 

• Although of a similar average size as their European counterparts, Greek small retailers (covering 66 per cent of sales, compared with 34 per cent for Greek SMEs overall and 25 per cent for retail SMEs in the EU) have traditionally showed little ability to generate value added. However, our survey shows that the static and conservative reaction of SME retailers throughout the crisis has not been uniform across all firms operating in the sector. Specifically, along with weak and passive enterprises (covering ¼ of the sector), there are dynamic enterprises (covering 38% of the sector) which have gone ahead with a combination of investment and strategic moves thereby achieving better operating results.
• Furthermore, the small size of Greek retailers puts additional pressure on their liquidity and their operating cycle, as their suppliers have significant negotiating power, with the main supplier covering 40 per cent of their total purchases and usually being a large enterprise (with 30 per cent of them being foreign enterprises).
• The Greek SME retailers seem to make inefficient use of fixed capital, needing about 5 times more capital than the EU for €1 of turnover. On the other hand the other factor of production – labor – does not seem to be in significant surplus, as employees needed to produce €1 of turnover are just 16 per cent higher than the EU average.

To sum up, an increase in the average size of firms (e.g., through partnerships or mergers) should help to correct some of the structural distortions. We note that this restructuring, is not expected to put additional pressure on employment, as there is not much of a surplus workforce in the sector. Indicatively, based on our survey, the percentage of SME retailers that went ahead with redundancies was lower than the rest of the SME segment, both during the initial phase and in later stages of the crisis. This development should enable the creation of economies of scale that will help forge an effective business culture that can generate high value added in the sector, by means of strategies that target (i) branding, (ii) e-commerce, and (iii) supplier relations.