Lately, there have been numerous signs things are picking up. Housing starts are up for the first time in many months. Manufacturers have been reporting strong profits, although with the exception of electronics, hiring is at a standstill. Retail sales are up and many dealers in our industry are reporting increased sales. Most of the above have sifted through to the general public giving them the confidence to spend.
On the other hand, the typical consumer believes President Obama has kept his promise not to raise taxes on the middle class. True, income taxes to this group haven’t been raised, although 15 or more other taxes have been increased that consumers haven’t felt yet. So take advantage of what they don’t know now. Other positive factors are the portion of America that is still working has built up substantial reserves because they were afraid the economy would take a downturn. Savings in America are at a 20-year high. With available money in hand, consumers are ready to invest in home improvements they have been putting off for years.
They are back in the market and although shopping harder, they are spending. Another important factor that may push this upturn in sales even higher is when Americans become aware of the rumblings of a value-added tax (VAT) within the administration and congress. If enacted the earliest it would take effect would be in December. I believe if this talk becomes common knowledge, consumer spending will further increase to bypass the proposed VAT.
In theory, a VAT is supposed to take the place of increased income taxes. In reality, in the 30 or so countries where the tax has been imposed, income taxes have still increased. In fact, in each of these countries the VAT has risen along with other taxes. Great Britain is now worried about its 20% VAT shooting to 25%. I predict our initial tax will be 10% although 5% is the rate being bandied about. A VAT could stop increases in floor covering sales in their tracks.
It is therefore critical to our survival to have a congress that will refuse to authorize more spending. We don’t have it to spend. In my 50 years in the industry, including the 22 years writing this column, politics is rarely if ever touched upon, but these are extraordinary times. In Great Britain, where flooring sales are actually slightly stronger than in America despite its wretched economy, there is a push by the flooring industry to stop the increase in their VAT. Unlike Americans, they have experience with the devastating effect of the VAT. The truth is that politics are responsible for destroying our economy and more importantly to all of us, our industry, and we have to face facts.
For now we are enjoying good sales, so it makes sense to ride the wave as long as we can. If the ride lasts until the end of the year, we may be able to extend the newfound happy days. Now is the time to make contact with existing customers, increase your exposure on personal sites like Facebook, improve your website and, if you can afford it, advertise like crazy—not with “namby pamby” ads, but hard-hitting, in your face advertising that explains to consumers why right now is the time to buy. Keep an ear to the ground, and if it seems that this VAT is likely to pass, adjust your business model fast.