? Stores left with stock after snow deterred customers
? Some plan to hold prices despite 2.5% tax increase
Shoppers are expected to go on a final "beat the VAT" spending spree this weekend as they try to save money on major purchases such as sofas and TVs before retailers start pushing up prices on Tuesday.
Argos, Comet and Dixons as well as DIY chains Homebase and B&Q are running last-gasp promotions to pull in shoppers. VAT is increasing from 17.5% to 20% just as higher rail fares and petrol and domestic fuel price rises kick in.
Richard Hyman, strategic retail adviser at Deloitte, said it would be one of the busiest shopping weekends. John Lewis has already broken records with its sale. "There is pent-up demand," said Hyman, adding that many retailers had been left with more stock than expected as a result of the pre-Christmas snow.
The bad weather came at a time of year when retailers rake in most of their profits, and the majority of store chiefs are anticipating that sales will be lower than in 2009, according to a recent study by the British Retail Consortium.
The retail sector employs nearly 3 million people and there are concerns the tough environment could see smaller chains and independents go to the wall as consumers struggle with the economic realities.
The VAT rise will add an estimated �158 a year to essential bills for the average household, according to research by uSwitch.com. VAT aside, food and clothing prices are already going up as retailers import inflation from overseas caused by increases in labour costs and the price of raw materials such as cotton in east Asia.
The shadow chancellor, Alan Johnson, has called for the VAT rise to be delayed amid fears public spending cuts could hamper the country's recovery. "The increase in VAT will hit people hard when people can least afford it," he said.
There have already been casualties with womenswear group Alexon warning in December that its profits had been dented by the snow, while others are battling structural decline as sales shift online. Analysts believe HMV will be forced to close some stores as high-street sales of DVDs and CDs continue to tumble.
"The VAT rise is significant when you look at the bigger picture," said Hyman. "It is a 2.5% government-imposed price increase at a time when there are all sorts of downward pressures on people's disposable income. What will happen is retailers will have 2.5% lopped off their sales."
The challenging environment has seen new chains such as Clas Ohlson of Sweden and American giant Best Buy rein in UK expansion plans, while major chains such as Marks & Spencer and John Lewis, which have large home furnishing and clothing businesses, are trying to limit the shock to consumers caused by next week's tax changes.
M&S said it was holding the price of some entry-level products such as women's jogging pants at �9.50 but warned others would rise as new ranges arrive in stores in the coming weeks.
Furniture Village, one of the UK's biggest furniture chains, said it was not passing on the increase until March while John Lewis said its "never knowingly undersold" price promise meant it would also hold back.
"We will be the last retailer to make any price increases," said a John Lewis spokesman. "That being said we have, in the same way as all other retailers, seen a previous VAT rise as well as import prices going up. So although we have absorbed a great deal of these costs, some prices will increase."
Howard Archer, chief UK and European economist at IHS Global Insight, said Britons would use the remainder the holiday to "make purchases they could increasingly struggle to make in 2011".
He believes consumer spending will rise by just 1% in real terms this year with the Boxing Day sales simply sucking forward spending.
"Consumer confidence is currently low and the substantial fiscal squeeze will increasingly hit public-sector jobs and consumers' pockets," he said.
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