SINGAPORE, Jan 6 — Now that the year has turned, some retailers have switched from getting consumers to buy big-ticket items before the Goods and Service Tax (GST) go up to absorbing the tax increase for customers or giving them a token discount.

They say they are doing so to help consumers cope with rising prices.

GST went up from 7 per cent to 8 per cent at the start of the year and the cost of living is not going down anytime soon, with economies around the world still working to slow interest rate hikes and inflation.

Economists have stressed the importance of prudence and building up a safety net, particularly in the face of job uncertainty in a slowing market.

To ease the impact of the tax increase, supermarket chain NTUC FairPrice already announced last month that it will be offering a 1 per cent discount for 500 essential items from January to June.

Not to be outdone, other businesses are also keeping an eye on consumers’ spending and keeping them close.

What retailers are offering

1. Ikea

Popular Swedish furniture store Ikea told TODAY that it will absorb GST so that its products and services will “remain affordable for the many with thinner wallets” and that “as many people as possible will be able to afford them”.

It cannot promise that the cost of products will remain unchanged through the year, of course.

“Through 2023, we will continue to review each product and analyse what actions we can take to keep prices as low as possible for our customers while remaining a profitable and sustainable business.”

Ikea has three stores in Singapore in the Alexandra Road area, Jurong East and Tampines.

2. Owndays

Optical retail chain Owndays announced in an Instagram post on Dec 27 that it would be absorbing the GST increase. Its website showed that it has stores in 33 malls around the island.

When contacted, Mr Trevor Hwong, general manager of Owndays Singapore, said: “Spectacles are an indispensable component in our everyday life. By keeping prices the same, we hope customers would not have to compromise their right to good vision and proper eye care out of concerns of higher prices.”

It plans to absorb the increment “for as long as it is economically viable”.

This move would cost the company an estimated S$60,000 a month.

3. Sheng Siong

The supermarket chain, which has 67 outlets listed on its website, will be offering a “1 per cent counter inflation discount” on almost all items for three months until March 31.

Alcohol, tobacco, vouchers, lottery and certain types of infant formula are excluded from this discount.

Shoppers will be paying 1 per cent less on the overall price of the product inclusive of the 8 per cent GST.

“(It’s) a small gesture to help our customers tide through this inflation period,” Sheng Siong told TODAY, though this “small gesture” is estimated to cost the retailer around S$3 million to S$4 million in total.

Marche restaurant group and furnishings store Spotlight are offering similar deals and TODAY has reached out to them for comments.

What a shopper says

Housewife Teresa Ng, 50, said that she would certainly prefer to shop at places that are absorbing the tax increase for now.

“The economy is not doing well and people have lost their jobs... the richer folk may not care about this but for the average person, this increase does concern us... when buying many or costlier items, (the 1 per cent increase) can come up to a big amount.”

How does it benefit businesses?

Beyond helping people to manage rising prices, companies offering to absorb the tax increase can build goodwill with their customers, motivating them to return for purchases or services.

Dr Hannah H Chang, an associate professor of marketing from the Lee Kong Chian School of Business in Singapore Management University, said that the decision for companies to do so depends on a number of factors such as the target customers’ profiles, their price sensitivity and overall market competition.

If done well, the accumulated customer goodwill and relatively competitive pricing may help drive sales volume, store traffic and, in the longer run, customer loyalty, she added.

However, the businesses will have to manage the cost of absorbing the tax increase and weighing that against the corresponding increase in sales volume.

Professor Sharon Ng, head of the division of marketing at Nanyang Technological University’s Nanyang Business School, said that in absorbing the GST increase, businesses show that they are not just concerned about their own profits but that they understand the difficulties their customers face and are willing to share the burden with them.

This helps the companies to build a “stronger emotional connection” with customers, which may translate into stronger brand loyalty and stronger gains in the long run.

“The monetary losses they incur in this case is no different from the cost of marketing campaigns that the companies will need to incur to converse with their customers,” Prof Ng added.

TODAY - The Malay mail