Garden Retail: The VAT conundrum

With VAT about to go back up to 17.5 per cent, retailers should think about incentives for customers

In the US, there are two customer favourites in the retail calendar. First, the after-Christmas sales put price points where people want them. Not retailers, but definitely their customers.

The second is that in January of every year, consumers buy new or used cars at the absolute lowest price. That's because inventory taxes are levied against the amount of stock held at the end of the month. That makes it well worth the dealers' while to drop prices.

In both cases, retailers are dealing with price points they would prefer not to set - but which, ultimately, they have to make work to their benefit.

And what does this have to do with you? Unless something changes, VAT goes back to its 17.5 per cent status in 2010. That means that either you have to raise prices or potentially lose money. Worse, you've got customers who are going to get scared, all over again, about spending their hard-earned cash on items that just days before cost less.

Add to that the fact that you're already working within tight margins and your operating costs are probably higher than you'd like them to be. Now your prices are forced to go up just at the time that you have the expected winter slowdown.

Winning or losing because of this is up to you. In point of fact, you can use this problem as a means of growing your business. You'll win by being strategic about pricing.


The wonders of loss-leaders

Supermarkets make amazing profits yet operate to incredibly tight margins. It's all about volume and repeat sales. If you get customers through the door and keep them there longer than they had originally planned, you've got the win. They'll remember something else they need - or see something that catches their fancy. They'll buy.

And one of the best ways that supermarkets get those feet in the door is through loss-leaders. Working their own strategies and with their corporate suppliers, they drop coupons that guarantee the customers will get a better-than-best deal on whatever it is that they're looking to buy.

Sometimes it's a freebie. Sometimes it's a two-for-one. It can be a percentage discount on all buys or pounds-off purchases above a particular threshold - or, better yet, more pounds off higher thresholds, too.

For the best of the best, they've mined their loyalty-card or internet sales data that show exactly what customers usually buy that will get them back in the door again. Only rather than giving them the same thing, the coupon is for an excellent deal on a different brand of the same product, usually at a higher price - which makes it more likely that they'll buy the higher-priced brand in future.

In each case the retailer is working the odds - and in these deals, the odds are in the retailers' favour. Because once you get people in, they'll buy. Sure, you'll have the few who only purchase exactly what the coupon called for - but even then, they'll have had such a good experience in your centre that they'll want to come back.

For the most part, you'll have folks who come in for one thing, see another - and another besides that - maybe stop for a cup of tea and a scone, get their second wind and, while relaxing, think of yet another bit or bob that would be perfect for the house/office/gift...

But first, you've got to get them in. And you need to know, like you know your own name, exactly which products have what margins so that you know exactly on which products and for how much you can afford to give those discounts.


Get going

It's time to put together a plan that goes far beyond VAT increases. Get the word out to your suppliers that you want them to collaborate with you in developing your annual discount plan and you expect them to work positively with you to increase sales of their products. You should be driving harder deals with them anyway.

If you've got a cafe, offer up a meal or snack deal. Buy one, get one half-price. That way, you'll get customers in with family or friends and not only will they buy at your very profitable cafe (even with the deal) but you'll keep them in the centre longer and then they'll buy more.

Have a VAT sale in the first week or few weeks after it goes back up. Give your customers the opportunity to buy new product at the old prices before they pop up again. They'll buy.

Be creative and be smart. More than anything, be proactive. Don't let the VAT increase throw you off stride. It's a blip. Use it to your advantage.

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