Sales Start Early as Retailers Prepare for a Tough 2010

A record number of shops will be starting their post Christmas sales early this year by opening on Boxing Day. Factors such as poor sales figures in November and the VAT increasing on New Year’s Day has resulted in retailers across the United Kingdom pushing for consumers to start shopping ahead of the ‘January Sales’.

According to the Centre for Economics and Business Research, the VAT cut boosted consumer spending by some £6.8 billion. This brings concerns that reversing the tax cut in January has the potential of stalling economic recovery.

In addition to increasing profits for retailers, lowering the VAT rate by 250 basis points has also had a significant impact on households finances. Although criticized by many, this cut should be the equivalent of an additional £300 disposable income for each household in 2009, providing the majority of retails passed the savings on to consumers.

Faced with resuming the 17.5 per cent VAT rate, companies that choose not to pass the increase on will encounter falling profits, while those that do may find a reduction of consumer spending.

In what has been a difficult year for retailers and consumers alike, many well known companies have gone into liquidation and disappeared from the high street. While the last statistics from the Insolvency Service found that company insolvencies decreased by 4.7 per cent in the third quarter of 2009, concern is growing as to how the return to 17.5 per cent will affect retailers in 2010.

The Centre for Economics and Business Research estimates that the beginning of 2010 will bring with it a reduction of consumer spending by 0.7 per cent. This is based on their forecast that the annual consumer price inflation will peak above three per cent in the New Year. Believing that domestic demand is still too weak to recover, The Centre for Economics and Business Research argued in their November 7 report that the VAT cut should stay in place until July 2010 while the economy continues to recover.

The move from January Sales starting early has been a gradual one that has shifted with retailers increasing trading hours. Traditionally shops remained closed on Boxing Day, but it is estimated that by 2005, 60% of businesses opened trading hours. This year will see a further increase as across the UK, major shopping centres and retailers choose to trade.

Although the next few days of retail trading are likely to soar as consumers make the most of last few days of the VAT cut and the early start of the January sales, it is clear that retailers must be prepared for the effects of the looming VAT increase. Despite many retailers such as John Lewis reporting sales growth in the first two weeks of December when compared to 2008, it appears 2010 will be a difficult year.

Retailers and other industries dependant on consumer spending are expecting a tough Spring 2010 following the reversing of tax cuts in January.

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