Bumper show issue - Gift Focus magazine

VATtaxing timesPlans to increase Value Added Tax from 17.5% to 20% in the new year have met withmixed reactions sparking fears that it could threaten the recovery and cause a double-diprecession. Alan Monahan spoke to suppliers and retailers in the gift industryVAT is set torise on the 4 th ofJanuary 2011,but CathieBroster ownerof The ChestnutPavilion inTarporley,Cheshire, refusesto regard it asa black day inthe history ofretailing.“I wouldrather it wasn’t happening, but I haven’t hada nervous breakdown about it,” she says.“I think it will be quickly forgotten in ourmarket.”Her shop sells jewellery, toiletries, candles,cards and gifts for various occasions. Doesshe think the VAT rise will affect so-calledpricing sweet spots?“We’ve never used price points such as £9.99or £19.99 because I don’t think they work.Items go out at a round figure – so a braceletwill be £20 not £19.99 – we have no troublewith that as the penny pays for the bag.”“Our customers know they get really goodvalue for money. Everything is gift wrappedfree of charge. And it’s going to be my policynot to put the VAT rise on the stock I alreadyhold – I will carry that. But I am going tostart increasing the margin in September andgently work it in until Christmas.”Enesco Europe managing director KenJohnson comments: “Although it would bebetter if it didn’t happen, I don’t see it havinga massiveimpact overall –bearing in mindwhat has beenoccurring inChina and Indiamore recently,regarding thesupply chain,increased pricesand higherfreight charges.”He believesthat consumerswill have face to rising prices but advises: “Assuppliers we must make sure that what weoffer is valuefor money.”“Everyone will have to make decisionsabout margins. There is no doubt that £9.99is an important price point, but look on thehigh street now and you see strange pricingfrom a lot of people - I’ve seen £11.43!“After talking to retailers it is clear thatthere is someconfusion as tohow the VATincrease will beapplied. I thinkthat many largeretailers willhold it backuntil after theJanuary sales.”Sue Arnotthas owned theLily Shamblesjewellery shop in The Shambles, York, for thepast nine years. She plans to absorb the VATincrease initially but thinks, inevitably, priceswill have to move up gradually during 2011.She says: “I am not particularly worriedabout the VAT increase. We had our best yearever in 2009. You would probably think at themoment that people wouldn’t buy jewelleryand it would be well down the line from foodand other necessities. But that has not provedso with our shop. If people want somethingthey are going to find a way of getting it.”David Lewiswho, with hisfather Philip,runs home andgift supplierXystos anda clutch ofCollectablesstores in thenorth-east,says: “Thegovernment isgoing to take abigger slice andwe will have to cope with that. As a supplierwe have recommended retail prices – so wewill have to look at the relevant margins andhow we are going to tackle the situation.“As a retailer we follow RRPs and that willprobably put margin pressure on the businessbecause £9.99 is still going to be £9.99. Youhave to decide whether it stays at that orbecomes £10.99 as you are not going to have£10.25!”giftfocus 123