5 Ways Retailers Can Prepare for Sales-Tax Holidays

by Susan Johnston on July 23, 2013
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Unless your store caters to warm-weather activities, you may notice a drop-off in business in the summertime when people go away for vacation, spending less time shopping and more time relaxing.

“Part of the challenge of the summertime in particular is it’s really hard to drive traffic into the stores,” says Paula Rosenblum, managing partner at Retail Systems Research.

To help alleviate this problem, 17 states — including Alabama, Florida, Georgia, Missouri, New Mexico, and Virginia — have planned sales-tax holidays in August. By temporarily suspending sales tax on clothing and academic supplies, these states aim to spark economic activity in the retail sector during back-to-school season. (Tax holidays at other times of the year in various locations focus on hurricane preparedness items, hunting supplies, or Energy Star appliances.)

Here are five ways that bricks-and-mortar stores can capitalize on sales-tax holidays.

  1. Know what’s tax exempt and what’s not. Rules vary by state, and higher-priced items are often still taxed. In Alabama [PDF], for instance, basic clothing that costs $100 or less per article is tax-exempt during the tax holiday, but accessories (watches and jewelry) are not. Make sure that you understand which items you sell are tax exempt — and reprogram your point-of-sale systems accordingly. Because the tax exemption generally doesn’t apply across the board, you can’t simply hit a few keys or mark everything as “tax free.”
  2. Plan your inventory. In anticipation of a tax holiday, consider stocking up your best-selling items that meet the requirements for sales-tax exemption. “You don’t want to lose any sales,” Rosenblum says. “Aim to sell about 75 percent of what you’ve bought for that time of year, but avoid over-stocking.” Also decide whether you’ll display tax-exempt items front-and-center (to help customers find them easily) or at the back of the store (to encourage customers to browse other items).
  3. Anticipate staffing needs. Expecting higher foot traffic during the tax holiday? You may want to staff your store with a few extra people than you would on a typical weekend. In doing so, it’s generally better to bring in regular employees who usually work other shifts than to hire new people. “Make sure you have staff that’s there and that’s knowledgeable,” Rosenblum advises.
  4. Communicate to customers. Retailers tend to over-market most holidays (like Christmas or Halloween), but Rosenblum says it doesn’t hurt to tell them about sales-tax holidays, because not everyone knows about them. She suggests creating a flyer listing the products you have available. “Small retailers are editing their assortment and curating them to a point where it makes it really convenient,” she says. “That’s something that a big-box retailer can’t do.”
  5. Focus on customer experience vs. additional discounts. Sales-tax holidays don’t mess with your margins, but offering deeper discounts to compete on price can. “I’m a fan of staying reasonably close on price and differentiating on service, especially for small retailers,” Rosenblum says. Your goal should be to help customers have such a positive experience that they’ll return to your store: Greet people as they enter the store. Consider making the holiday more festive with live music or balloons, if that’s appropriate for your brand. “I think there’s a sentiment at the moment where consumers would like to buy local,” Rosenblum says. “Give them a reason to buy local by making it friendly and making it a good customer experience.”
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