Retailers told to be ready for summer VAT hike

RETAILERS should plan for a 2.5% VAT hike in July, a sector expert said last night.

Dermot Power, head of retail at business advisers BDO in Manchester said 2010 would be another test of retailers’ resilience after what has been a surprisingly positive Christmas trading period.

The event, entitled “Turning the Corner or Armageddon Postponed?”, saw Mr Power predict a continued polarisation of the market place, with only retailers which are “truly differentiated” thriving, and online retailing growing rapidly.

He said only eight out of 50 retailers had seen sales fall over the Christmas period, said consumers had been “fed up with being fed up” and had decided to spend in the latter part of last year.

The VAT hike he said would be a “pretty nasty piece of work”, and would inevitably hit consumer confidence and weaken demand.

BDO is forecasting online sales to rise 10% compared with growth across the whole sector of just 1.2%. Mr Power said buying on the Internet was now truly “in the psyche of the consumer.”.

Guest speaker was Paul Gilbert, finance director of North West fashion retailer Matalan – one of the big success stories of the retail sector.

The Skelmersdale-based chain saw like-for-like sales grow 13% over Christmas.

Mr Gilbert said a potential hike in VAT would pose a number of practical challenges, but with the market place expecting an increase businesses would have time to plan for it.

He said Matalan regards Asda and Tesco as its major competitors, but always looks to be located close to them when opening new stores because of the footfall they attract.

“They challenge us on price – but can’t compete on space and product range. Whenever we are looking for a new store I always ask ‘Where’s the food?’ because we do benefit from being near to the grocers.”