Harrods managing director Michael Ward has said only a “congenital idiot” would put up VAT on December 31 following Chancellor Alistair Darling’s refusal to back down and delay the planned increase.
Ward said that having to raise prices just days into the critical January Sale will be a difficult job, for which the iconic London store has had to put together a task force to flesh out the details.
This week it was reported that Darling will not budge on the issue and VAT will rise to 17.5 per cent at midnight on New Year’s Eve, despite pleas from business leaders to hold off until after January’s Sales.
Ward is concerned that the luxury sector will be hit by the double whammy of the VAT increase and the 50 per cent income tax hit for high earners that comes into force from April next year.
He does, however, believe there will be possibility for growth in the luxury market but said “we will need to work harder at what we do”.
Ward said Harrods is also closely watching sterling rates. “We have seen, because of the devaluation of sterling, price increases of 25 per cent year on year in luxury,” he said.
He added that some high-end brands including Dolce & Gabbana are starting to react to the price increases by launching lower entry-price point ranges.
Mark Henderson, director at luxury retail body Walpole, said the VAT increase “will be painful” for its members.
Henderson added that he is optimistic for luxury in the medium term. He said: “London is still the capital of the world with places like Bond Street still incredibly vibrant.” He added that regional markets in the UK could continue to be more difficult.