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Use NZ tax hike to lift margins

The looming sales tax hike in New Zealand could be an opportunity to build margin back into photo retail products, argues First Retail’s Chris Wilkinson:

For the first time since 1989, New Zealand retailers are facing a rise in sales tax. This will lift the cost of all goods by a further 2.5 percent on October 1.

I have been talking with photo stores to see what stance they will be taking as the deadline looms.

The results will form part of a presentation to European imaging retailers later this year, as they also struggle to determine pricing levels in a similarly competitive market.

Overall, the majority of business owners recognise it is vital to lift prices – including core categories like 4×6-inch prints, passports and enlargements.

Only a few hope to absorb the increase using value-added services or new lines to maintain profitability.

Photo retailers have held a large number of products at perceived ‘price points’ for a number of years. The new rate will be a catalyst to better reflect the margin necessary to run a business successfully.

It may also have other benefits, seeing business owners returning to growth and be willing to re-invest again.

While mass merchant’s pricing seems to be creating a new benchmark, even they will not be immune to the government tax hike. With a greater shareholder focus on profitability, it’s questionable how much longer many can maintain 10 cent prints, solely on the premise these drive foot traffic.

It’s clear a great deal more consideration from retailers has gone into the effects this tax increase will have – both positive and negative. Many are looking to claw back margin that has been eroded over recent years.

Others are worried it will lower demand and put further strain on small businesses. One thing is for certain: The change will happen in October and it’s an opportunity smart retailers shouldn’t ignore.

– Chris Wilkinson
First Retail

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