Why Retail Needs More Than Just A Cut In VAT If It Is To Survive The Apocalypse

Today, Go Outdoors, the retailer which sells bikes, tents and waterproof clothes, is on the brink of collapse, and with it 2,400 jobs are at risk. It is understood to have lined up restructuring experts from Deloitte.

It is not alone. Cath Kidston, Quiz, Monsoon, Victoria’s Secret are just some of the other retail businesses which have succumbed to the multiple pressures currently impacting the sector. And many, such as John Lewis, Debenhams and Arcadia have yet to reopen all their stores.

And as we reflect on the first week of non-essential retail being allowed to reopen, the picture is far from encouraging. Those images of long queues outside the likes of Primark, Apple
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, Nike
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, Sports Direct and Zara appear to have been ephemeral.

Data from yReceipts shows that the growth rate of retail transactions in the U.K. from the start of the week up until the Friday, was just 3%, with overall transaction volumes remaining at around 30%-40% of pre-COVID-19 levels.

It has been a cautious return to the high street and the forecast initial spike followed swiftly by a return to the enforced behavior of the last few months would appear to be materialising. Because if this government has done one thing very effectively, it’s that it has instilled a fear of the virus in all of us.

According to consumer psychologist, Zana Busby, commenting in her recent article, “The return of non-essential stores: how the pandemic is changing our pleasure based retail habits!“, there are now three types of consumer, euphoric, trepidatious and waiting in the wings. And it would appear that the majority of us currently fall into the latter two categories.

Which is why reports in The Sunday Times of chancellor Rishi Sunak considering cutting the rate of VAT in order to stimulate the economy should be greeted with caution.

It comes at the same time that it is widely predicted that in the coming week, we will see announcements from the government of a further easing of social distancing guidelines and of the plans to reopen the hospitality sector.

It is believed that there could be a reduction in the headline rate of VAT from 20% to 17% and an increase in the number of products attracting a zero rating. Any reduction in the headline rate is likely to be for a fixed period, rather like that which was witnessed in the aftermath of the 2008 financial crisis.

However, even if the cut in VAT were from 20% to 15%, by way of example, a shirt currently priced at £10 would attract VAT of £2, but if levied at 15%, this would only reduce by 50p, making the change small and therefore unlikely to have any significant effect on consumer spending.

Consumer confidence and spending are unlikely to even begin to resemble pre-pandemic levels in the short to medium term. And to compound the situation, there is always the risk of a second wave and a no-deal Brexit waiting to heap more misery on the economy and retail in particular.

For once, poor sales can’t be blamed on the weather, this time it’s something far more serious and damaging, and also a threat to which there appears, for now, to be little to offer retailers, by way of protection.