Essential reading for retailers and suppliers in the home improvement market
Those clever people at KPMG have warned us that some retailers may use next month's VAT increase as an opportunity to mask price increases. Well – as I gather young people say these days – duh. According to KPMG, 60% of retailers and manufacturers intend to raise prices by more than the January 4 VAT increase of 2.5%. Of course they do – they aren't stupid. Retailers have had to deal with falling price points and tighter margins for years – now the government has handed them an opportunity to ease prices up, using the VAT change as cover. Did anyone think retailers weren't going to seize that opportunity with both hands? Does anyone think they haven't already done so?

The key in all this is Known Value Items, or KVIs. They are the things your customers buy regularly – so regularly that they know before they come into the store what they ought to be paying. There are two types of KVI: the things that are bought so frequently that the shopper can recall clearly what they cost last time, and the things that are advertised so frequently that the shopper has been educated to expect a price point.

Grocers know all about KVIs – a pint of milk, a dozen eggs, a tin of beans, a bag of sugar and so on. They can't muck about with those prices. But these are things that shoppers buy every week, and the diy market doesn't operate on the level of purchase frequency. A customer comes into your shop for a 1in paint brush – can he remember what he paid last time he bought one? Unlikely.

I recently bought some brass picture rail hooks from my local independent hardware shop: 30p each. A few days later I was in the B&Q store a mile or so further down the road and I checked to see what their price was. Answer: £2.79 for two. Now, you can take the view that this is outrageous profiteering on the part of B&Q, or that it shows what mugs the independents are; that's up to you. What it says to me that the value of an item is what someone is prepared to pay for it - and if retailers use the VAT increase as an opportunity to adjust some prices to what they believe their customers are prepared to pay, who can blame them? I don't.
View User Profile for Colin Petty Industry consultant Colin Petty considers developments in the DIY market.

Posted by Colin Petty | 15 December 2010 | 13:01 | More from: Talking Point


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