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How clothing giants and H&M plan to manage VAT hike

Monday, 23 July 2012
Swedish clothing giant, H&M says it does not plan to increase clothes prices in Spain despite the government's decision to increase VAT to 21 percent from 18 percent.
H & M says it will take the hit when the Spanish government increase VAT in a bid to squeeze water out of stone in its troubled economy. After archrival,  Inditex, which promise not to raise prices to its customers after tax increase, the Swedish clothing giant, H&M's CEO Karl-Johan Persson, also promised to leave prices unchanged.

Spain is working hard to improve their disrupted finances and as part of this, Prime Minister Mariano Rajoy will implement several tax increases. He wants to include a raise VAT from 18 percent to 21 percent.

Following the Government's announcement about the upcoming VAT hike Spanish fashion giant Inditex, which has chains like Zara and Massimo Dutti, quickly went out and assured that the company will not raise prices to the Spanish customers following the tax increase.

Instead, the company's CEO Pablo Isla, himself  accept that the company will swallow the increased cost of VAT and to keep clothing prices stable, despite hitting profitability.
Inditex is by far the largest clothing operator in Spain and the country is also the clothing giant's home market. This makes it difficult for competitors, including H & M, not to follow the market leader, according to experts who spoke to various Swedish media outlets.

"As the largest player goes out and says that they will not raise prices competitors are wary of raising theirs too, at least,  to begin with, "said Stefan Stjernholm, H & M analyst at Nordea to Swedish business daily Dagens Industri .

He points at the same time that Spain is a much more important market for Inditex than for H & M. This means that the VAT increase in much greater impact on the Spanish clothing empire than the Swedish. 

During the first half of this year, H & M clothing sold more than Skr 3 billion in Spain, including VAT. It may be that that company had total sales, including VAT, for nearly Skr70 billion during the same period.

H & M had in late May 137 stores in Spain and told the Spanish customers that it will not raise their prices with VAT increase.

"We do not intend to raise prices for our Spanish customers, our aim is to give our customers in all markets, a good offer in line with our mission fashion and quality at the best price, "writes Hcan Andersson at H & M's press department in an email to the paper.

He also stated that H & M continues to open stores in Spain, despite the difficult situation in the country.

"Our expansion in Spain is continuing as planned and we are planning for example, that during the fall to open new stores in Badajoz, Valladolid, Zaragoza, Orihuela and Madrid, "writes Hcan Andersson, according to Dagens Industri.
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