The job market conundrum

WHY WORK AT ALL?

These comments may sound strange in a country where employers, especially those active in the construction, manufacturing and IT sectors, complain about a shortage of workers. However, Tyrowicz explained that labor shortage is not the right diagnosis. Currently, about 10 percent of Poland’s potential labor force remains outside the labor market. The main barrier for those individuals to work is flexibility in terms of working hours and part-time rather than fulltime employment opportunities.

While the skills of those who remain outside the labor market may be perfectly matched with the needs of employers, the potential workers and the employers do not even enter negotiations to cooperate, because the employers do not offer positions which respect the need of the workers to combine their professional and private lives. Part of the problem is also that for lower paid jobs, part-time employment results in low total compensation, which reduces incentives to even start working.

Economically inactive people comprised 44.1 percent of the total population above the age of 15 in the first quarter of 2019, slightly more than in Q1 2018, GUS data shows. Within that group, 54.6 percent were pensioners and 16.4 percent were students. In the case of working-age people (defined in Poland as aged 18 to 59 for women and 64 for men) neither working nor seeking a job, the most often mentioned reasons were family duties (31.9 percent), disease or disability (25 percent) and further education (24.4 percent).

GENDER AND AGE ISSUES

What is more, those actually employed are more likely to be men (64.4 percent of men are active on the labor market according to GUS data) than women (48.1 percent). The European Commission’s data for working-age population paints an even darker picture: in the European Semester report for Poland it was pointed out that 79.3 percent of Polish men aged 20-64 were employed, with just 65.1 percent of the corresponding group of women.

Kulesa believes that employers will soon have to start including older staff in their perspective. The over-55 population is growing while the availability of young people declines. Yet another challenge for employers is the Z generation, which is hardly loyal to companies they work in. These young people also prefer more flexible working conditions. It will also be a challenge for employers to change the way they think about their work culture so that people feel more comfortable and more stable at work, Kulesa said. In her opinion, there are already companies open to such changes, yet an old style of work management still dominates in Poland. Changing it will be hard for both employers and employees. Companies seem to be unaware that changes may also bring profits in a financial sense.

HOW TO FIND THEM?

Tyrowicz also argues that there is a large number of people available for work. “Employers usually complain about insufficient skills, excessive wage expectations and too few workers. There is nothing wrong about those complaints, but I would be cautious in interpreting those complaints as actual measures of labor market situation,” she said.

Within the group of potential workers not currently entering the labor force, women are naturally the largest group, but gender is not the defining characteristic. The individuals forced out of the current labor market require flexible hours for a variety of reasons: caring for a family member, a partial physical disability or mental disabilities. With today’s state of automation and use of robots, it should not be a problem to employ people with a broad range of disabilities. If we compare the number of hours worked, it would seem that a Polish person with a disability is 17 times more disabled than a peer in the Netherlands. This is obviously absurd and shows how little we have done to create an inclusive labor market, Tyrowicz said.

In her opinion, the required solution is not to change the labor code, which in Poland is strict, yet easily circumvented by employers. For an efficient labor market, it is fundamental to have efficient job counseling services. Ten years ago I would have said the same. Companies do not know how to find employees because there are no available services in that regard, Tyrowicz concluded.

This shortage is not provided for by existing temporary job agencies or existing brokers, which are rather bulletin boards. The rules are simple: a professional job brokering and counseling service available broadly and free of charge to workers, at some fee to employers. Such services exist in different forms and rely on different technologies in the Netherlands, France, Belgium, the US or Germany. There is no need to reinvent the wheel, the economist said.

Average monthly gross wages (seasonally adjusted), PLN

Source: GUS

4830,22

June 2018 4848,19

July 2018 4873,67

August 2018 4902,81

September 2018 4935,35

October 2018 4962,01

November 2018 4975,70

December 2018 5015,52 5045,04 5055,26

January 2019 February 2019 March 2019 5090,69 5123,33 5138,50

April 2019 May 2019 June 2019

ARE HYPERMARKETS LOSING THE

Why are some retail concepts dying while others are flourishing? What is so special about the Polish HYPE? retail market that makes it so attractive for large retail chains, despite extremely low margins? Who stands to gain, and who will lose in this game of ever-changing rules and consumer habits?

BY MAURYCY SZWAJKAJZER Poland is a peculiar market for retailers. Over the past three decades, it has attracted a slew of international retail chains, some of which are now withdrawing or changing their retail concepts. The change that the market is experiencing is profound. For some it is good – even sensational – with an abundance of opportunities on every corner. At the same time, it may prove difficult – or even catastrophic – for others. For a better understanding of the Polish retail market, it’s a good idea to focus on its segmentation first.

Proximity and partly convenience –These are small or very small facilities, located very conveniently for the customer (on the way from home to work, in a block of flats, etc.). Sales are largely impulse driven, and the service must be very easy and fast. Prices are usually slightly higher, which, however, does not seem to be the most important thing. Most products are packaged. Traditional-style sales of, for example, meat still exist but are disappearing. Instead, new services appear, such as take-out coffee and hot dogs.

Discount stores – Stores derived from discount and hard discount stores in the Western European style of the 1990s. The investment cost in the aesthetics of the facility has historically been very small and not considered significant. Currently, however, the aesthetics are becoming important. The variety and quality of goods are improving. Prices are the lowest on the market (sometimes too low). They are free-standing or on the ground floor of residential buildings. Less often in shopping centers.

Supermarkets – Historically the oldest format of (organized) mass sales, originating in the 1950s in France and the US. A wide range of goods offered. Prices are moving towards those at discount stores. The format is currently undergoing major changes.

Hypermarkets – Format resulting from the high popularity of supermarkets. It was born in the suburbs of France, the US and Germany. It can be compared to a two-story passenger plane, which at one time was very cost effective. Prices of products tend to fall.

Online sales – A kind of parallel format to all of those previously mentioned. It is implemented in two ways; by collecting from store shelves (local stores in small cities), but more often from central warehouses located in the suburbs (so-called last mile). The format is currently developing very intensively, but also the most strongly conditioned by consumer habits, which are rather conservative in Poland.

The above division and definitions are far from exhaustive, but sufficient for the needs of our considerations. Food products are a good litmus paper for assessing the condition of a given format. They are usually the largest part of sales and CAPEX/OPEX associated with it (storage, display).

To put it simply – profit from sales of food products is based on the difference between the purchase and sale of the product minus operating and employment costs. This relationship in recent years, and especially last year, has changed dramatically.

LOW PRICES, HIGH COSTS

Compared to our neighbors, food costs in Poland are extremely low. Poland has the second cheapest food in Europe – for example it is half the price of food in Denmark.

The revenues of companies selling products to the end customer are therefore limited. On the other hand, the costs of production, and thus of purchasing by store chains, are rising. The situation in food production costs could also be described as “strange.” The pressure to lower the prices payed by the retail sector is enormous. Purchasing power and the ability to exert pressure by the largest discount chains is unprecedented. Food producers tend to settle for excessively low margins, saving their financials with scale. There are already negative effects of such a pricing policy. The effects are felt both by the producer and the retailer, who negotiated “too well.” This type of situation is bound to be repeated.

On the other hand, the operating

costs of commercial facilities increased significantly last year. The first factor is the increase in electricity costs by up to 50 percent (with perspective for more). The second is the increase in wage expectations along with the problem of finding workers. The third is the need for a technological change. This change is related to the need to implement energy efficiency.

IS IT TOO LATE?

Another aspect haunting the trade is legal in nature, including changes in regulations in refrigeration, the Sunday trading ban and the announcement of an additional tax for hypermarkets.

All of the above create a very difficult situation in retail. On the revenue side, little more can be done than to expect B2C price increases. On the cost side, you first need to find investment capital to get cost-effective technology that will reduce operating costs or improve sales. Borrowing this capital gives little, because the sum of lower operating and loan costs produces no change in costs on this side of the balance sheet. If a retailer did not invest in modern and effective trade at a time when the money was still there, it may now be too late.

WHO STANDS TO WIN?

Not all chains and formats handle these challenges equally well. It depends on the current tastes of the average Pole and the business courage of the store owner.

Discounters – the time is good for them. The owners of these chains turned out to be brave visionaries. They not only invest in proven locations and concepts, but also find time for experiments (sometimes expensive) that are a must for future success. Sometimes the experiment fails, and when it does, the store/concept is closed and everybody moves forward.

Proximity/Convenience – theoretically, low end-client food prices in Poland should hurt this format the most. Poles are, however, demanding customers. According to research, Polish customers, even more so than the rest of Europeans, do not like to queue. So, they want to make purchases quickly and conveniently. These needs are best met by this format. Customers do not make large purchases, but the margin remains significant. New locations of this format are being created all the time. The drive of some Poles to “work for themselves” also helps the development of this format, which is often franchise-based.

Hypermarkets – this format is in the most precarious situation. At present, it may even seem like the only solution is to move out. Just think about the British chain that recently announced the reduction of its facilities to the size of supermarkets, or about the German chain that withdrew completely from Poland, or the French one that did the same in Italy. Investment and operating costs of such facilities are the highest, the legal burden is very difficult, meanwhile clients are embracing new, innovative formats.

THE CRUX IS RIGHT AHEAD

The crux is the most difficult moment of a climb, and it is an apt metaphor for the challenge major retail chains are currently facing. Reducing hypermarkets to a supermarket format seems like the only way to go, since the supermarket appears to be the largest rea-

“Purchasing power and the ability to exert pressure by the largest discount chains is unprecedented

sonable business format. However, reducing the sales area is often more complicated that it sounds. As long as the facility is located in a shopping center, it is possible to release some of the space to another tenant. On the other hand, in stand-alone buildings (as is the case for most of Poland’s hypermarkets) it is a task that no one seems to be able to do – at least not so far.

When following the retail market throughout Europe, it is hard to avoid the impression that Poland is a little like a lab, where retail patterns and formulas for the entire continent are being prepared and tested. This is where the giants come and go, interestingly, often at the same time. Within two to four years, we could witness a few more spectacular twists, such as: an increase in food prices (clothing probably not, maybe even a decrease), withdrawals from the market and the creation of the “de lux/convenience” discount format, which has always been and will always remain – a local store.

MAURYCY SZWAJKAJZER Board Member, Enreco

A graduate of the Warsaw University of Technology specializing in refrigeration and air conditioning. Since 2008, he has been involved in the development of retail chains in Europe and the development of new commercial formats. He advises on and develops energy efficiency technologies and creates strategies for their application in the refrigeration industry.