Retailers to pay extra £35 million in re-labelling

With the new year, a VAT rise will arrive to the UK. On the 4th January 2011 VAT will rise from 17.5 per cent to 20 per cent, following the Coalition Government’s emergency Budget in June 2010.As well as for the rest of the tax-payers,

this increment will have consequences for retailers, which will face extra costs up to £35 million just for the re-labelling of their goods.

Stephen Robertson, director general of the British Retail Consortium, warned in an interview in last June that "We didn't want a VAT increase. It will hit jobs, consumer spending, the pace of recovery and add to inflation but we accept the Government has no easy options. It's some consolation that the range of VAT-able products isn't being extended. The start date, in the middle of the busy and crucial post-Christmas sales period, will be difficult but retailers would rather have more notice than less."

“Larger retailers will have factored the rise in VAT into their forecasts and prepared for it as best they can,” comments Tom MacLennan, head of lender services at RSM Tenon. “The sector has been hit hard over the past few years and businesses recognise that they should start sales earlier. There is a ‘feast and famine’ effect. Consumers typically splurge in December and then tighten their belts in January. That, combined with the increase in VAT to hit early next year, means Q1 2011 will be a particularly hard time for retailers. Alan Pearce, VAT partner at Blick Rothenberg Chartered Accountants, estimated the tax increase would cost the average family between £7 and £8 a week.

But strictly focusing on how this increase in prices will affect Fashion and other retail industries, there is one first effect to consider: every item of stock will have to be repriced and labels ready on the shop floor come 4th January. This process is expected to cost retailers approximately £35 million according to a survey made by Her Majesty’s Revenue and Customs (HMRC) in 2009. This research, asked a wide range of businesses to detail the activities involved when dealing with a VAT rate change. The results show that the re-pricing and invoicing changes are expected to cost £35 million while system changes are expected to cost £85 million.

Staff at a store which contains 10,000 items is likely to spend more than 50 hours relabelling items by hand. However according to industry expert Avery Dennison, with the help of an automated labelling and printing solution, the time spent repricing items can be halved – instead of approximately 20 seconds per item we estimate that this may be reduced to as little as 10 seconds per item, and this is a saving which, in today’s economic climate, businesses cannot afford to ignore.

Retailers need to plan and prepare the relabelling strategy in advance – the VAT rise takes place at retail’s busiest time of year, the Christmas rush shortly followed by the January Sales, when relabelling is already a significant task. Each member of staff needs to be on the shop floor and customer service needs to be at its best in order for retailers to increase their sales during this demanding period. To cope with such a stressing period, Avery Dennison recommends dedicated service consulting with the retailer to find out exactly what is required before providing a complete, hassle-free solution for printing and labelling.