The VAT increase hit companies of all sizes and in all sectors like a bucket of cold water. A larger drop in consumption was suspected. Even more. To avoid this, most companies in all sectors have chosen not to pass on the increased tax pressure in the final price. A decision that forces them to share the profit cut with suppliers and other links in the chain. Still, in September, consumer goods sales fell 3%, small businesses 7%, apparel another 3.4%…

As Borja Oria, President of Acotex, explains, “to these declining figures, which do not seem so strong, we must add the cumulative losses that we have had since 2006. For example, in textiles we are down 30%.”
Why has consumption been hit so hard even though most companies have rushed to announce they won’t be raising their prices? “Because of the psychological effect it has on the consumer. Even with the increase in 2010, sales of fashion and accessories have fallen by 9.5%, even though we have not increased prices in our industry,” adds Oria.

customer impoverishment
“The worst thing is the message that reaches the consumer. His perception is that everything is more expensive and that he has become poorer because many things are now costing him more. It is important to give society an injection of encouragement to prevent consumption from shrinking further,” says Manuel García Izquierdo of the Spanish Trade Confederation (CEC).

It is consumed less and differently. Tax increases further tip the balance in favor of cheaper products. “That is why these reports from companies that do not collect VAT are so important. Before the crisis, design and quality won out, now it’s basically price. People buy on occasion. There is great price sensitivity. Raising them, no matter how little, is bad strategy. You have to avoid it at all costs and try to cut costs everywhere: in supply, in suppliers…” continues Borja Oria.

The need to cut costs
Less sales and for those who choose to cover VAT, now also less profit margin. Except for the big stores “who use their supremacy to put pressure on the weakest in the chain, the producers. Thousands of farms disappear every month due to the crisis. We will see the impact of VAT later,” explains José Luis Miguel, COAG technician.

In the case of small companies, on the other hand, the general trend is “to negotiate with manufacturers and suppliers about sharing the costs of the increase in VAT. Everyone is reducing their margin,” explains Borja Oria.
The problem is that in some industries it is already almost impossible to continue like this. “In small companies, margins are minimal. Many have to close. Overheads eat them up. And all the more so if you consider that to the increase in VAT we must add the increase in the equivalence surcharge, which has gone up from 4% to 5.2% in the general rate and from 1% to 1.4% in the reduced rate,” says Manuel Garcia.

Of course, it is absolutely impossible to absorb a 17-point sales tax hike such as school supply stores are suffering; or 13 points, such as florists, hairdressers, gyms, etc. From these sectors, an increase in this type of domestic services is already forecast, illegal because some of them will have to close. As will happen to many of the 30,000 nightclubs in Spain. A sector that already amasses 29% of falls and that, to avoid a further burden, is requiring VAT to be levied on tourism and hospitality, as many Spanish cities attract tourists thanks to their nightlife and music festivals.

reinvent consumption
In short, the situation forces us to reinvent ourselves in all areas. “Look for new formulas of loyalty, create clubs. use technologies. And that shopping becomes a new experience. For example, some clothing brands open at night. In September, the white night of fashion took place with different promotions in every store. Concerts, fashion tips, photo competitions, sweepstakes,” recommends Oria.

company management