Apparel, shoe prices can't match Customs cut, Govt is warned

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Clothing and shoe retailers are warning the Government not to expect the 20 percent Customs duty elimination to translate into consumer price declines of the same magnitude.

Michael Maura, the Bahamas Chamber of Commerce and Employers Confederation's (BCCEC) chairman, told Tribune Business that the sector was concerned that the Government expects the duty elimination to result in a "one-for-one" decline in prices.

He explained that merchants could not afford such cuts in an environment where energy and other businesses costs continue to rise, as they needed to maintain gross margins and revenues to ensure they covered salaries and business expenses.

And, while many clothing, shoe and sporting goods retailers believe the duty elimination has offset the VAT hike's impact, Mr Maura said some had been deterred by the bureaucracy and other concerns from applying for this exemption.

"I've seen both sides of the coin," Mr Maura said of clothing and shoe retailers. "Some have complained the paperwork and process required to receive the duty-free exemption is too much for them.

"Some have said they prefer to pay the duty rather than submit the paperwork and confidential information on pricing. Many believe pricing should be determined by the market, and some are concerned that the Government believes a 20 percent duty reduction should equate to a 20 percent reduction in sales price.

"We all have to operate with the cost and ease of doing business, the cost of BPL and real property tax not decreasing," he continued. "There cannot be a one-for-one clothing, apparel reduction by 20 percent because duty has gone down by 20 percent. You have to keep the gross margins and cover the salaries and business expenses."

Mr Maura said it was too early to draw general conclusions on how the VAT rate hike to 12 percent, and introduction of exemptions (zero ratings) for breadbasket food items and medicines, had impacted businesses, consumers and the wider economy.

Acknowledging that "everything has to settle down", Mr Maura said feedback provided to himself and the Chamber to-date suggested the impact "from a business perspective" had been less painful than when VAT was first introduced in early 2015.

He added that the initial 7.5 percent VAT represented an increase that was of much greater magnitude than the recent 4.5 percentage point jump. "This one was not as bad as it was not to the same degree," Mr Maura said.

"From the businesses I have spoken to, what I have been advised is there has been an uptick in the number of sales transactions at the expense of the dollar value per transaction. While the volume number has gone up, the dollar cost per transaction has declined, and some people believe consumers are buying what they need as opposed to what they want to have."

Mr Maura said the 12 percent VAT hike was implemented during a period, July to August, that was traditionally soft for retailers and merchants apart from those catering to the Back to School market.

"From a sales perspective I would say overall it's been a bit of tough period over the last couple of months for retailers," he added. "Some have been the beneficiaries of not being negatively impacted by the 4.5 percentage point VAT rise because of the reduction on apparel and shoes." Some also increased their marketing spend in the wake of VAT's introduction, with discounts also employed to drive traffic.

Breaking down businesses he has spoken to by category, Mr Maura said restaurants had seen a "moderate decline" in patron spending although numbers had not fallen. Consumers, though, were equating a 15 percent gratuity and 12 percent VAT as adding 27 percent to their meal costs.

"Spending and the cost of doing business has increased tremendously as VAT has increased the cost of utilities and supplies," Mr Maura said of the restaurant industry's message. "Breadbasket items being reduced has not materially helped."

Electrical, paint and building materials stores had informed him of a drop in Saturday and Sunday spending by consumers, with persons adjusting to reduced disposable income by "shifting from purchasing premium brands to purchasing less expensive brands".

The Chamber chairman said the sector had informed him "construction contracts have been a saving grace, as these sales have not changed. Commercial sales have not been impacted significantly as yet, likely due to the Government's delay in the VAT assessment".

Some inner-city grocery stores had suffered sales declines of 25 percent, though, while costs such as energy had increased. Mr Maura said he had been informed that consumers were buying "only what they need", and only coming in if they lived within walking distance.

This stood in contrast to grocery stores in more affluent areas, where "higher disposable income and unwillingness to sacrifice preference" meant the expected increase in bread basket food sales had yet to materialise.

As for beauty stores, Mr Maura said he had been told that while sales were down by 10-15 percent in July, August was flat when compared to 2017 numbers.

General merchandise stores also reported that July was "very slow", possibly due to consumers spending heavily prior to 12 percent VAT's arrival, but August and early September saw improvements.

"Pharmaceutical companies are seeing their VAT credit/government receivable climbing," Mr Maura added. " They wonder if they will see grocery retailers shifting their buying of over the counter medicines from abroad and to the local pharmaceutical sector in order to avoid the payment of VAT at the border. The decision would obviously be influenced by the prices charged by the pharmaceutical wholesalers."

Comments

Economist says...

No problem. You have just told the Bahamian Consumer to go and shop in Florida as you have no intention of reducing your prices.

Posted 14 September 2018, 3:04 p.m. Suggest removal

DDK says...

It is not the retailers' call. It is the Government's. Government is making life hell for retailers and shoppers alike. Further, they made the shoe and clothing exemption application so ridiculous it is small wonder many are unable to complete the application, which is probably what Government anticipated.

Posted 14 September 2018, 3:49 p.m. Suggest removal

DDK says...

"And democracies are safer and more permanent that oligarchies, because they have a middle class which is more numerous and has a greater share in the government; for when there is no middle glass, and the poor greatly exceed in number, troubles arise and the state soon comes to an end." From "Politics" the Basic Work of Aristotle (384-322 B.C.).

Posted 14 September 2018, 3:55 p.m. Suggest removal

John says...

When government first proposed to remove duty off clothing and shoes, the intention was to to help rescue the many clothing and shoe merchants who were going out of business due to stiff competition from online shopping and persons travelling abroad to shop. And to become more competitive, these stores will have to reduce their prices. But what happened is someone in the Ministry of Finance, who obviously was not informed or did not concern itself with what the intended results of the change in duty was, decided to hijack and sabotage the program and use it as a whipping stick, requiring merchants to come and bow every time they want to bring in goods and get duty free exemptions. So because of the ignorance and putting more red tape on merchants additional reporting requirements, some have decided to reject the government's plan and continue paying the customs duties in the regular manner. But what the government has admitted but failed to realize, is that there is a large volume of l importers who bring volumes of goods into the country and pay no duty or vat on them. Most of them clothing and shoes And so through governments own flawed policy and increase in red tape, they have now given these people an advantage in the market place. Some of these persons bring goods directly from China and their prices were below Miami's wholesale prices. And now persons who do not want to get caught up in the additional red tape and requirements the ministry of Finance is requiring to get exemptions will eventually buy goods from these individuals as a means for their business to survive. So if government would have have simply removed the duty off clothing and shoes like it was intended, rather than burying it down in red tape and cherry picking, not only would prices come down, but it would have put a squeeze of those who were paying no duty all along by making more businesses effectively able to compete with them. It is wrong to say prices will not come down. Two Examples: When customs duties were reduced or removed of fans, the price of a Lasko 18 inch fan came down from $55.00 to $45.00. The price of a 16 inch came down from $$50.00 to $45.00. In the case of car tires,since the reduction in duties on new tires less people are buying used tires. So the price of new tires did come down. And because of used tires having to be sterilized. and other requirements, used tires are no longer a great buy, compared to new tires and the environment is not being filled up as rapidly with used tires. So rather than trying to run the country out of a cigar box, government, more specifically finance, should have simply removed the duties off clothing and shoes as was the original intention. Market forces would definitely bring the prices down. Rather they try to make appear that they were doing such a great and marvelous favor for merchants when clothing and shoes have been duty free in most Caribbean countries for near a decade or more.

Posted 14 September 2018, 4:07 p.m. Suggest removal

ohdrap4 says...

and the winner is the merchants who figures out a formula to take advantage of the new rules.

john's arguments is not quite right because the folks who smuggle goods are in the business of sselling junglist clothing, and they hardly have overhead.

as for me, I look at the online price , look at the local price and do the math.

this week i purchased some underwear which price was 50 cents less than what amazon offered, so i purchased right away.

Posted 14 September 2018, 6:44 p.m. Suggest removal

John says...

> john's arguments is not quite right
> because the folks who smuggle goods
> are in the business of sselling
> junglist clothing, and they hardly
> have overhead.

Prove your statement or say you lie. The shops in Lyfod Cay and near Old fort Bay closed because no one shope there anymore..They learned to find away around the rules too.

Posted 14 September 2018, 7:47 p.m. Suggest removal

ohdrap4 says...

Prove? I do not have to prove anything. Especially in this entertainment place.

But you are not exactly known for showing proof either.

I knew a young lady who worked in one of those high end shops. She told me she spent all day cleaning and arranging the items in the shop because no one shopped there. I do not know anyone who pays 1,200 for a bikini, or any similarly priced clothing item.

the average shopper in the bahamas is walmart people.

Posted 14 September 2018, 8:57 p.m. Suggest removal

TheMadHatter says...

Bahamians will not get duty free status to be able to compete with the shanty town shops. Even if some do, they still have to add VAT which the shanty town shops dont charge.

You cant compete with shanty town people or businesses. They not only have a local big time lawyer on their side, but a whole international community of "human rights" agencies batting for them. Try mess with them and they will shut the whole country down and every Bahamian will be serving jail time in Geneva.

Haitians ... good
Bahamians ... bad

That's the rules.

Posted 14 September 2018, 11:06 p.m. Suggest removal

OldFort2012 says...

Retail in the Bahamas is dead and there is nothing anyone can do to revive it. Nothing.

It is so much cheaper and more convenient to shop on Amazon and have it delivered here by courier. I buy nothing but groceries in the Bahamas any more. And even those I am beginning to get delivered in bulk once a year for anything that is non-perishable.

If I were a retailer I would simply close up shop. There is NO hope. This is what progress looks like.

Posted 15 September 2018, 10:12 a.m. Suggest removal

ohdrap4 says...

PROGRESS=WTO

Posted 15 September 2018, 12:28 p.m. Suggest removal

Chucky says...

Haitians = Good
Bahamian= Bad.

Not sure Madhatter's statement is accurate.

Likely more true to say :

Bahamian= Bad

In comparison almost all other nationalities = better natures people.

Tell me I'm wrong.

I can't remember a day when I wasn't embarrassed by at least some act or comment by a fellow Bahamian.

Posted 15 September 2018, 2:03 p.m. Suggest removal

BMW says...

Chucky you are so right!

Posted 16 September 2018, 7:22 a.m. Suggest removal

ThisIsOurs says...

Dont fall for the fallacy that dumb/callous/lazy/whatever people only exist in the Bahamas. There are less than intelligent/wise/empathetic people all over the world. China, India, Austrailia, Canada, Europe **all** of them have a preponderance of not so intelligent people. Because we're in the Bahamas we just happen to see the smarter more industrious imports. Move around their country and check it

Posted 16 September 2018, 8:07 p.m. Suggest removal

John says...

‘The average shopper in the Bahamas is Walmart people.’ You just hit the nail on the head. And that is why Michael Maura was trying to explain why prices in The Bahamas will not come down at the same amount of the tax break. Do you know Walmart owns of the factories that make the clothing they sell. The Sara Lee company that makes Hanes and Fruit of the Loom underwear. They own the company that also makes their ‘George and Martha’ label as well as ‘Faded Glory ‘. Also The Dickies you buy in Walmart is not the same quality you would buy in other stores. It is a lighter fabric and hence the label is different. And most of the electronics and appliances Walmart sells is refurbished. That is ok if you live in the US and can easily take it back but imagine shipping a 50 inch flat screen here and it only works for two weeks. Well when stores bring in items that are faulty they also have to take the loss on it. And in addition to the price on the items they also lose the freight, duty and VAT, which together sometimes exceeds the price of the items.

Posted 17 September 2018, 8:03 a.m. Suggest removal

Dawes says...

For years the clothing stores have said if there was no duty they would be able to compete with Miami. Now government has done that (if they meet the criteria) they start to say they shouldn't be forced to reduce their price. Fine you don't have to reduce your price, just pay the duty on the goods. If you don't want to pay the duty, then reduce your prices. Your choice.

Posted 17 September 2018, 9:44 a.m. Suggest removal

BahamaRed says...

I already saw this happening. Hence why i shop Amazon one shot, I get what I want for way less than what they charge here. And it's a good chance not every Joe blow will have a pair...

Posted 17 September 2018, 10:27 a.m. Suggest removal

John says...

@Dawes where did you get the info that stores didn’t want to be forced to reduce prices. The argument was that the price decrease would not be equal to the price cut, at least not at first, and as the legitimate stores are able to gain market share and take the market back from unlicensed and fly by night importers then they can reduce prices more.

Posted 17 September 2018, 11:18 a.m. Suggest removal

John says...

And to reiterate two points. 1. Why didn't the government put the same qualifying and reporting requirements when it removed the duty off airplane and helicopter parts and off clothes washers and dryers?
2. The fact is that government was supposed to remove customs duties and stamp taxes off all imported items that they charged VAT on. VAT is supposed to be a replacement or alternative tax and not an additional tax. But they continue to collect both taxes and continue to suck billions out of the economy.. Yet the national debt is growing about a billion annually.. They blaming the web shops for destroying the economy, but it is the over taxation that has killed the economy dead...

Posted 17 September 2018, 11:57 a.m. Suggest removal

DDK says...

Agree with your above points, but not on Bahamians spending $600 MILLION per annum gambling. The thing with the back in the day numbers man was you placed your bet and that was it until perhaps the next day. No 24/7/365 gambling all over islands which is sucking the life blood out of the country as quickly as crooked politicians. It is is a combination of the two that has killed the economy. The price of commodities is sky high as it is............

Posted 17 September 2018, 12:31 p.m. Suggest removal

JohnDoe says...

Unfortunately the issues facing our economy are not quite that simply. Without getting into the morality of gambling and from a purely economic point of view when a person wagers one dollar in a gambling game, on average more than eighty cents of each dollar is returned back into the economy as customer winnings that can be used by the customers as they see fit. That means that 80% of each dollar is returned back into the economy. The remaining 20%, the difference between customer wagers and customer winnings is used to cover Gaming taxes and fees, operating costs like salaries, NIB, charitable donations, employee insurance, rent, BPL, BTC, water sewerage and other overhead and vendor costs. The balance is then profits to the shareholders. Are not all of these economic transactions inputs and reinvestments back into our economy? Conversely, when a merchant like those above who are receiving the duty tax breaks noted above spends a dollar to purchase apparel and shoes from the USA what happens to that dollar? What percentage and how much of that dollar is re-invested back into our local economy by the USA business owner who sells the apparel or shoes to the local merchant? We may agree or disagree with gambling but let's at least be intellectually honest with our arguments. You sound just like Peter Turnquest and Marlon Johnson, just making stuff up to disguise their incompetence and support their narrative.

Posted 17 September 2018, 2:40 p.m. Suggest removal

hrysippus says...

johndumb writes" on average more than eighty cents of each dollar is returned back into the economy as customer winnings" What an ignorant lie. You just make this stuff up, eh?

Posted 18 September 2018, 1:42 p.m. Suggest removal

hrysippus says...

This is a very simple point that Mr, Maura is making. If customs duties make up 30 percent of the cost of an item then cutting that duty by , say 50 percent, will not result in a 50 percent reduction in the selling price. The retailers cost of the item has decreased 15 percent not 50 percent. Mathematics is not the governments best subject.

Posted 18 September 2018, 1:54 p.m. Suggest removal

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