VAT reduction triggers flurry of promotional activity

VAT reduction triggers flurry of promotional activity

When Chancellor Alistair Darling announced on 24th November a
reduction in the standard rate of VAT from 17.5 per cent to 15
per cent, it was meant to help retailers, by encouraging consumers
to spend more. But many retailers saw it as more of a hindrance,
in that they were given just one week to comply with the change,
which went into effect on 1st December.

The response of Anne Walker, a partner at cataloguer
International Dance Supplies, was typical. “Changing the
VAT rate at the busiest time of the year can only bring more
stress and expense to the already hard-pressed retailers,”
she said. “And for what effect 2.5 per cent when most
retailers are not able to encourage shoppers with their 20
per cent plus discounts.”

But even as they were complaining that the reduction was too
small to boost spending, marketers were busy putting together
promotions in an effort to make the most of the situation.

Preemptive strikes

The short time frame between the announcement of the VAT cut and
its implementation put etailers at an advantage, said Tony
Bowman, chief executive of “The beauty of
eCommerce is that we can react almost instantly to opportunities
such as this.” Etyres reduced the VAT almost as soon as the
cut was announced, which Bowman said led to a surge of traffic.

Indeed, Nigel Swabey, chief executive of multi title cataloguer
Scotts & Co said that direct marketers, in general, were in a
better position to react to the cuts than bricks-and-mortar
retailers. “Conventional retailers will need to reprice
most of their stock on the shelves,” he said. “In
some cases prices have been incorporated within the packaging,
and these cases will be difficult to rectify. Direct retailers,
being more agile, should be able to adjust to the change more

And swiftly they did react. The day after the announcement,
fashion cataloguer Boden sent a promotional email that declared:
“Gordon, if you’re going to cut VAT, cut it properly: 17.5 per cent
OFF all orders plus FREE delivery. (This offer includes
childrenswear which doesn’t actually have any VAT, but, you know,
what the heck?).”

Discount apparel cataloguer M and M Direct was also quick to act,
announcing on the 26th November that it was implementing the
change four days before the official start date. “What’s
more,” said a statement from the company, “any
awkward prices will be rounded down, not up, and all delivery
charges will also be trimmed accordingly.”

Boden wasn’t the only marketer using the tax cut as an excuse to
offer steeper discounting. Apparel brands Onfire and Extremepie,
for instance, awarded customers 17.5 per cent off their orders for
a limited time. “It’s given us a brain ache trying to sort
the prices, so we thought you’d prefer a simple VAT refund at the
old higher rate of 17.5 per cent,” announced the latter’s
e-newsletter. Furniture retailer Dwell also played on the sense of
urgency implicit in the rate cut, emailing customers to let them
know that its VAT-buster deal of 15 per cent off was never to be

Sex-toy retailer arguably had the most creative
promotion. “We don’t think individual customers would
notice the savings if we reduced prices by tuppence ha’penny here
and half a groat there,” said director Richard Longhurst.
“So the biggest stimulus we can give is to put all the VAT
savings into a pot and let one lucky LoveHoney customer win the
lot”-a sum he predicted would hit five figures.

Now that the dust has settled

So far, the reduction hasn’t increased sales as the government
had hoped. According to IMRG, 1st December-the day the VAT cut
went into effect-did set a record for the number of online
transactions in the UK. But the organisation’s chief executive,
James Roper said the traffic couldn’t be attributed to the VAT
reduction. “Monday is almost always the biggest shopping
day of the week,” he said, “and Mondays in December
are usually huge.”

What’s more, although the number of transactions was up 3 per cent
from the previous year, the total amount spent was flat, said Jon
Prideaux, deputy chief executive of payments service provider

“As ever with grand government gestures, it’s
pointless,” Mark Dugdale, chief executive of multibrand
cataloguer Compton & Woodhouse, said of the VAT cut when it was
announced. “Will a £2.50 reduction on a £100
product make any difference to spending patterns? I don’t think
so, but it does create a monumental amount of work for retailers
from all channels and disciplines to change prices, especially
for Christmas.” It remains to be seen if those retailers
that put in an extra creative effort to woo customers in the week
leading to the VAT change will reap any benefits but at the very
least they all get an A for effort.


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