Case Study: VAT cut will not be enough to bring back customers lost at high end of market

Published on Monday 24 November 2008 21:19

THE economic downturn has so far not hugely affected sales at designer shoes and accessories retailer Pam Jenkins – but the owner knows it is coming.

The store, in Edinburgh's Thistle Street, has been insulated against the problems, as have other stores which enjoy spots at the high end of markets.

However, it is gearing up for a cold snap in the new year, when the financial posts – and the well-paid customers who hold them – are lost from Edinburgh.

The owner, Pam Jenkins, is not convinced the VAT cut will do much to lure in new shoppers in their place. On a 200 pair of shoes, the saving will only be 5 and she does not believe this will convince someone to buy them who otherwise would not have purchased. Instead, it will be a welcome bonus for those who had been looking to buy regardless.

She said: "Initially, I think any reduction in VAT to the consumer is good. But I don't think it's going to have a major impact on individuals' purchases. I think for families it will have a cumulative effect at the end of the week, when they have spent less than the week before."

However, it is likely to prove an administrative headache for firms like hers.

"Every pair of shoes in every box we have has a label with the price on it," she said. "We will have to change all the prices or we'll have a problem when we come to sell at the till." She welcomed the move overall, however, pointing out Alistair Darling was constrained in the range of actions he could take.

"I think Mr Darling is limited with what he can give away because it will cost everyone further down the line.

"What he's doing is directing money into the consumer's pockets and families' pockets across the board, which is good and the easiest and quickest way he could have done that.

"I think it's a good measure to take, rather than tinkering with income tax rates.

"The immediate effect of the VAT is the main benefit (of the Pre-Budget Report), and benefits everybody."

THE PRE-BUDGET REPORT: FULL COVERAGE