On 1 January the rate of VAT in the UK is set to go up by 2.5% after the temporary cut to see us through the Crunch. Many local retailers may not have cut their prices and this is the end of a very handy extra 2.5% margin. But they need to think now what they are going to be doing in January.
It is clear that the multiple retailers are all planning now. City analysts say they are well placed with lower stock levels and clarity about what shoppers are thinking. Lower mortgage costs mean that many families have had more money to spend each week – around £12 a week in June and £9 in July.
If shoppers feel that the Crunch is not so bad, then they may be tempted to spend a lot before Christmas. Analysts say that retailers will be promoting hard. However, they also say that the multiples will be pushing prices up in the background.
“With list price increases to more than offset the cost of higher promotions, customers may not be getting quite the bargain that they think,” says Andrew Hughes of UBS.
If shoppers are getting wiser to this kind of marketing, the opportunity for local retailers can only improve. If you treat your key customers as you treat friends, offering them value without ripping them off, then you can retain (or win) their loyalty.