WHAT MATTERS MOST: Reducing retail prices
It may surprise readers, but a large supermarket in Barbados stocks about 30 000 items for sale. Of course, they include different sizes of the same brand. It is impossible for any supermarket to import all the items it sells.
Therefore, it would be interesting to see how any one supermarket can gain any major advantage to allow it to reduce retail prices in Barbados. Unless there is a considerably lower markup on thousands of items at the retail stage by the supermarket, the objective of reducing retail prices by any one entity is a fallacy.
It has been suggested that markups in the food sector in Barbados are among some of the lowest in the retail trade. Apart from accounting for the size of the local value added, the rate of turnover is critical in determining a markup. The items with the highest turnover tend to attract lower markups. In this case, the seller concentrates on volume.
Any genuine effort to reduce retail prices requires a holistic policy approach that addresses the non-wage costs of doing business including energy, finance and tax relief, among others.
Furthermore, in an economy where domestic spending has declined and wages and salaries have remained stagnant, it is another fallacy to expect a new entrant to grow without compromising the sales volumes of existing supermarkets.
Typically, a retailer in this business is offering a wholesaler space to display his/her products. As a consequence, the latter gives credit to the former for a stipulated period of time. Of course, the longer period of credit is favourable to the retailer.
For example, if two supermarkets are of equal size, sales and profits, a wholesaler could change the equality overnight by offering one of them 30-day credit and the other credit for 60 days. This means that the turnover of stock becomes the critical issue.
This leads to the proposed role of Cost-U-Less in bringing down retail prices in Barbados.
Ideally, duty-free concessions are given to businesses that are able to earn foreign exchange. This was the major objective of fiscal incentives designed to encourage foreign investors to resource scarce countries in the Caribbean. Furthermore, it was understood that access to foreign currency was and still is the single most important factor in building a sustainable economy.
It is expected that the initial capital injection for construction and development of Cost-U-Less came from foreign sources. But in the future, the foreign exchange used in the business would be sourced locally. This observation is not rocket science!
From this perspective, it is very difficult to understand why Cost-U-Less received “exemption from the payment of import duty and VAT in respect of fitting, furniture, fixtures, equipment, construction materials and supplies for use exclusively in connection with the construction, development, sale and operation of the project”.
What is most troubling is that Cost-U-Less has also received “exemption for a period of fifteen (15) years from the payment of withholding tax in respect of dividends and interest paid to resident and non-resident shareholders, financial institutions or individuals making loans to the company”.
This exemption is unbelievable in the face of the Government’s decision to remove allowances for individuals converting bonuses into bonds, debentures, stock of the Government of Barbados mutual funds, or mutual funds; furthermore, the $10 000 allowance for shares in cooperative societies, new public companies and mutual funds.
What is it that Cost-U-Less is doing for the Barbados economy that entitles it to such benefits in both the construction and operational phases?
Not too long ago, a commercial bank came to Barbados and immediately offered a mortgage rate below its larger competitors; it eventually became a victim of the market. There is no magic to the food market; it has buyers and sellers; its pricing is based on tight margins, and the scope for profitability is based largely on local purchasing power.
There is evidence of profit in the sector, but the notion that it can be accomplished on the back of reducing prices without addressing costs is another fallacy. The only way for sales revenue to increase with reduced prices is for the quantity/volume sold to increase.
In an economy where Government’s policies have choked off local spending and where it has sought to justify its policies on the grounds of protecting foreign exchange, Cost-U-Less’ concessions are, remarkably, at variance with the Government’s economic policies.
• Clyde Mascoll is an economist and Opposition Barbados Labour Party spokesman on the economy.