Retail forced to swallow VAT hike

UK games retailers will see their margins slashed in 2011 as they are forced to swallow the cost of a VAT rise.

Senior retail figures have told MCV they are reluctant to raise the price of games above the watermark 39.99 price point once the extra 2.5 per cent comes into effect in January – to avoid driving customers away.

Chancellor George Osborne announced the rise in VAT in last week’s Emergency Budget.

The move may stimulate consumer spending in the run up to Christmas – as the public seeks out pre-VAT hike bargains – but the long-term effect at retail could be felt deeper.

Kim Bayley, director general of the Entertainment Retailers Association, told MCV: This is a big increase which is bound to have an impact on retail.

Government action often produces unintended consequences and if the result of this rise was to lead to more closures and interfere with the ecology of entertainment retailing, no one should be surprised if there is a outcry.”

Activision’s UK MD Andrew Brown feels that this VAT increase might make retailers re-think their pricing strategies.

Like so many other sectors, price points are seen as key in front of the consumer,” he said.

In this industry retail tends to work in large price steps rounded to the nearest 5. Is it likely 39.99 will become 40.84? Perhaps the VAT change will drive retail to re-think the large price steps being used.”