I was speaking to a friend who has a Sportswear business. FromÂ a singleÂ shop he has launched an on-line presence which now accounts for 90% of his sales and is the leading on-line seller for several product lines. He has not reduced any prices and the 2.1% VAT reduction has gone straight down to boost his ‘bottom line’. Coupled with the reduction in his bank interest he is doing ‘very nicely’ at the moment. He also stated that none of his competitors have reduced their prices either.
Perhaps it is time to take a view on the effects of the VAT reduction introduced at the end of November. I said at the time that I thought it was a very poor way to stimulate the market.
None of the restaurants I frequent have amended any of their prices (although there’s a plethora of special offers), neither has my dentist or hairdresser for that matter. Price reductions at the garage, pub and off licence have been offset by the duty increases.
I was in Comet recently buying a product which had reduced from Â£149 to Â£99. I negotiated hard to get a further reduction to no avail and eventually conceded to pay the Â£99. However, when I went to pay at the till I was given a Â£2.10 discount for the VAT reduction. I didn’t see this being offered anywhere, I was not made aware when I was negotiating and although it was a pleasant surprise it did not influence my purchasing decision.
I have been informed by ‘insiders’ at John Lewis that the VAT changes have cost them getting on for Â£10 million. Firstly they had to produceÂ tens of thousandsÂ of signs and posters. Secondly every till had to be re-programmed to give the 2.1% discount. Thirdly, as JL sell principally in ’round pounds’ they’ve had to service each till on a daily basis with substantial silver and copper coins to be able to give the correct change and we all know how much the bank charges for handling coins in and out.
Nobody, as far as I’m aware, has repriced their spring collections as the operation was too far down the line when the change was announced and it is unlikely that the Autumn season will be any different as the VAT reverts back to 17.5% at the end of the year.
When the reduction isÂ reversed in a few more months (although don’t be surprised if it’s implementation is ‘delayed’ until after the election) no doubt the retailers will be involved in more costs.
The VAT reduction may be influential in reducing the inflation figures but I suspect it’s had little effect, if any, on it’s original intention of boosting sales.
From BBC website 24/3/09
Rob Pike from the Office for National Statistics remarked that Decemberâ€™s cut in VAT from 17.5% to 15%, was being reversed.
A substantial number of shops which passed on the VAT cut in December seemed to have changed that by February, he told BBC News.
â€œWe have seen many prices return to the previous selling price in November, or even gone beyond that. And that is quite widespread.â€