Leading "big box" chain stores seem to be using the October 1 GST increase to win friends and influence people by absorbing as much of the tax as they can. The strategy has involved reviewing the prices of thousands of product lines and weeks of intensive negotiations with suppliers to achieve wriggle room on pricing. The aim is clearly to minimise the impact of the 2.5 per cent tax increase on sales in a flat economy, and to avoid the blanket price increases which may see retail go into free fall if people stop buying.
Briscoes managing director Rod Duke says a specialist team with support co-opted from various areas of the operation has been working on pricing ever since the increase was announced in the 2010 budget. Briscoes was absorbing the tax wherever possible. Decisions on pricing depended on a variety of factors including the type of item, its saleability and the willingness of suppliers to "meet us halfway".
"We've had conversations with our many hundreds of suppliers around our thousands of product lines where they might be saying: 'We will meet you halfway on the cost, if you will talk to us about volumes', and so on," he says. "We are in the last stages now but it was a huge job. It also cost us a lot of money and there is no way of recovering the cost."
He says the income tax cuts coupled with the increase in GST is a bit like "offering kids Brussels sprouts or pumpkin ... they won't be absolutely thrilled with either but they know it's going to happen anyway".
Mr Duke says the process will be completed well ahead of October 1. Many items in Whangarei Briscoes already have two price stickers - the pre- and post-October 1 charge. If the two prices are the same, this means the company is absorbing the tax.
Chief operating officer for The Warehouse, Richard Lewis, says the company has been in negotiations with suppliers over the past six months to try to minimise cost increases due to the increase in GST.
"There will be some increases, but we continue to monitor prices across other retailers to ensure customers are offered continued value for money and low prices in all categories," he says.
Spotlight New Zealand general manager for merchandising, Linda Turner, says: "we will absorb the GST increase in the first instance and then over time will figure out how to sort it out. We are trying to hold the line where we can. Any increases will happen over a period of time because certain things have changed".
She says much of the product was bought through Spotlight Australia and the link gives the New Zealand operation "quite good buying power".
The Australian team has worked very hard to source products priced at a level where the GST increase didn't have to be passed to the New Zealand customer, and New Zealand suppliers were also being "very very good". Prices can go up or down depending on where the product has been sourced.
"But we certainly won't adjust prices on October 1."
Spotlight is acutely mindful of the need to avoid a situation where people assume they will not be able to afford what they need after October 1.
"I think you will find no one is putting up prices willy nilly ... they'll be doing everything they can to avoid it."
Bunnings Warehouse has had a GST working group in place for the past four months. Issues addressed ranged from a review of all prices "one by one" to the necessary software development and "how we talk to customers about this at point of sale", says general manager Rod Coust.
A generic application of the GST increase might not make sense. "So a fair bit of reviewing price points has been necessary to check that the price is pitched right. There might be some prices you simply can't afford to move, full stop, because the product is already 'price sensitive'."
He says Bunnings will make sure everything is in place for October 1 when all prices became "live in the system".
The big squeeze is on
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