Heat on retailers to find the right price

As the October 1 increase in GST looms, retailers are wrestling with how to mark up their products without driving the customers away. Photo / Natalie Slade

Retailers are turning their attention to where they set prices after October 1, with signs pointing to a late sales surge if there is one at all.

The $50 billion-a-year retail sector was hoping for - rather than betting on - a lift in sales before the shift in the GST rate from 12.5 per cent to 15 per cent from October 1.

Recession-battered retailers are wary of pushing beyond critical price points in particularly competitive sectors and are holding out hope that the accompanying tax cuts will deliver more for them than pre-GST buying.

Head of marketing at Farmers, Dean Cook, said consumers seemed to have got into the habit of not spending.

"There's no big stampede, there hasn't been the big build-up. It's pretty tough out there still, half-way through the month it's been pretty flat."

New car companies and house builders in particular have been pushing the "beat the GST" line rather than those selling lower-priced goods.

GST was introduced at 10 per cent in 1986, which led to a 13 per cent rise in durable goods sales, and was raised to 12.5 per cent three years later, leading to a 3 per cent rise in sales. Cook said the response was much different this time around.

"I would certainly say that business is a lot flatter - you haven't seen the urgency. People are more savvy - they aren't easily taken in by the message that they have to get out and shop today."

Appliance retailer Noel Leeming says it is not pushing the "beat the GST" message hard, concentrating instead on where prices would end up after October 1.

General manager of merchandise Jason Bell said since the May announcement of the increase, his firm had been working through which price points - such as $999 and $1499 - could be held in a tough market.

"That means working with suppliers to see where we could renegotiate prices down to offset the impact of GST.

"To be honest, a lot of those are still being negotiated now in the last two weeks, especially for the big ticket items."

His chain had noticed some lift in sales but it would be a late run.

"It really has been in the last three weeks - and we're expecting the next couple of weeks to see that lift continue."

The fragile state of the retail economy was captured in data this week.

Seasonally adjusted core retail sales - which exclude the four vehicle-related industries - edged down 0.1 per cent in July. The amount spent in electronic card transactions last month was flat, with falls in most retail categories offset by a 2.3 per cent rise in non-retail industries such as travel and health.

Commonwealth Bank of Australia New Zealand economist Chris Tennent-Brown said the retail landscape had changed markedly.

"You would expect a bit of purchasing to be brought forward but in most areas most people have got used to sales where you get a much bigger discount than 2.5 per cent, so perhaps it doesn't seem like such a big deal to rush and save," he said.

"Likewise Kiwis have got used to walking into stores and not being too impressed unless they're seeing big sales signs all over the place. That's a big challenge for retailers to get us out of the thinking that 'we're in a recession so I need a really big discount'."

Retailers Association chief executive John Albertson said the separation of tax collection and pricing was a double-edged sword.

"If you're out there saying 'beat the GST increase', when it comes in you're going to have to apply it."

Tax cuts announced in the May Budget will mean those on $40,000 will get close to $10 extra a week once the rise in GST is taken into account. That extra increases to about $25 at $80,000 and more than $40 for those on $100,000.

"It's the tax decreases that are going to have the biggest effect on retail. Retail spending is as much about a state of mind as formal economic factors," said Albertson.

The September quarter Westpac McDermott Miller consumer confidence survey shows consumer perceptions of their purchasing power are a little more subdued since earlier in the year, with a net 24 per cent of respondents saying now is a good time to buy major household items, compared with a net 31 per cent in the June quarter. However, this is the second highest reading on this question since June 2007.

The "buy now" message has been pushed by new car dealers. One luxury car wholesaler, BMW NZ, says buyers are not queuing to buy before October. "There's great buying but where is the consumer?" said Mark Gilbert, BMW's managing director.

His company would be passing on the full GST rise to dealers. "Do you suck your tummy in? We haven't moved our prices for an awful long time so do you continually do this. Dealers will have their own way of treating it," he said.

A small business in the middle of the GST chain, Casa Giftware, says it is feeling heat from retailers to absorb the GST increase.

"I am coming under pressure from one of my retailers to absorb the 2.5 per cent and reduce the cost of my product into them, while all the while waving quite a big stick," said its owner, Judith Everitt.

"It's not the environment where we can raise wholesale prices. The retail situation is desperate - it's last man standing."

THE RULES

The IRD says that generally, if you have been invoiced for goods or services before October 1 the price will include GST at a rate of 12.5 per cent.

There are a few exceptions such as:

Laybys

If you put an item on layby, the amount of GST you pay on the purchase depends on when you make your final payment and take ownership of the item.

Example: If you make your final payment on or before September 30, you'll be charged GST at 12.5 per cent. If the final payment is on or after October 1 you'll be charged GST at 15 per cent.

Hire purchases

If you sign a hire purchase agreement on or before September 30, you will be charged GST at 12.5 per cent. If you sign on or after October 1 you'll be charged GST at 15 per cent.

Progress payments

The GST payable on progress payments will depend on:
* When the payment is due.
* When the payment is received, or
* When the invoice is issued.

Example: You're employing a tradesperson and paying them progress payments for their work. If, on or before September 30, progress payments are owed to the tradesperson, payments are received by the tradesperson, or invoices are issued by the tradesperson, then GST will be charged at 12.5 per cent. Otherwise GST will be charged at 15 per cent.