VAT rise to affect high street

Poorly communicated VAT rises in January could cause yet more of the High Street's most popular brands to disappear in 2010, warns brand specialists at Brand Reputation. January is usually a time when retailers can count on a peak in sales after the Christmas boom, yet with VAT set to rise back to 17.5 per cent, many brands will have to consider how this could impact their New Year trading period if they decide to pass on the increase to their customers.

Spending behaviour on high value items is likely to be particularly affected by rise, with many customers predicted to bring forward purchasing decisions to December. But as many retailers think about putting together price-led incentives to encourage sales prior to the price rise Brand Reputation CEO Graeme Crossley warns retailers to remember this is a short term tactic, one which will need to change to a more value-added proposition once the new higher price is introduced.

Crossley says: “Now will be a tricky time for many brands as they ask themselves do they pass on the rise to their customers or absorb the cost? We’ve already seen that Asda has pledged not to pass on the rise on its clothing range to customers but how may others will follow suit? Will any consult with their customers and find out their views or simply wait to see what their competitors do first?”

“Customer hesitance to spend in January when the sales usually spark a secondary peak in trading could put many retailers on rocky ground in a year that is still likely to remain scarred by the recession. A failure to properly manage the risks associated with the VAT rise and a lack of communication with customers for the reasons behind their decision could see us lose more of our long standing High Street brands as a result.”

Brand Reputation is multi-discipline brand communications agency for consumer brands. The company specialises in fixing brand 'pain' to deliver strategies that change consumer attitudes and behaviour to build sales, profit and market share for some of the world's leading brands.

Image: VAT