Tax-free shopping, one of the benefits of traveling abroad, was put on pause in the U.K. at the same time the country left the E.U. in December 2020. The perk was previously available to tourists from non-E.U. countries. What’s more, these visitors have since been required to pay a 20% tax on goods purchased in the U.K.
Brands have been feeling the pinch, as a result. Many U.K. brands, especially those in the luxury goods category, have seen reductions in sales and have closed local stores. A September 7 Westminster debate on the travel tax will determine whether the current retail challenges will persist.
U.K. luxury brand Mulberry has been operating in the country for over 50 years. In January, it had to shutter its main store in London, as a direct impact of the travel tax. Mulberry CEO Thierry Andretta said it would be “commercially unviable” to open another store in London.
According to Andretta, the harm being done to British brands, retailers and hospitality companies, as a result of the lack of tax-free shopping for tourists, is significant. “If we are going to be able to get the U.K. economy back to growth, we need a level playing field with Europe. Currently, we simply cannot compete, with Paris, Berlin and Milan all benefitting at our expense,” he said.
According to August 14 data from the retail consortium New West End Company, although flight bookings to London from the U.S. were up by 17% compared to 2019 in the three months ending in June 2023, the total amount spent by American visitors in the West End shopping district was down by 1%. Meanwhile, travel from the Gulf countries to London was up 7% in the quarter, compared to four years ago, but spending was down by 17%.
“This is not just about shopping tourism; this is also about restaurants, hotels, live entertainment, museums and job creation,” said Andretta. “We need the government to look at the data illustrating the broader effect that tourism has on the British economy and to reinstate tax-free shopping for tourists, as a priority.”
In April, Gerry Murphy, chair of British luxury brand Burberry, said during a business conference conversation with Prime Minister Rishi Sunak that the decision had made Britain the “least attractive shopping destination in Europe.” And in Burberry’s first-quarter earnings call on May 18, CEO Jonathan Akeroyd said, “[Burberry’s] tourists returning in London were up 19%, but that does compare poorly to the rest of Europe.” In Paris, it saw a triple-digit increase in tourist shoppers. And in Milan, the increase was 43%. “We’re disappointed that the government chose to scrap [VAT refunds for tourists]. It puts the U.K. at a competitive disadvantage,” he said. Burberry has 13 stores and shop-in-shops in London alone.
Burberry also reported that the lack of tourism spend was affecting its overall U.K. sales. Chief financial officer Ian Brimicombe said on the earnings call that even British shoppers now prefer to do their spending in mainland Europe, rather than in the U.K. Akeroyd also noted a big surge in U.K. tourist spending in Europe, calling it “quite telling.”
Dee Corsi, chief executive of New West End Company, said it’s plain to see that more tourists are becoming aware of the tax-free shopping issue and choosing to spend their money in European cities other than London. “While it’s reassuring that our capital city hasn’t lost its appeal when it comes to attracting overseas visitors, the widening gap between footfall and spend in the second quarter should set alarm bells ringing in Westminster,” she said.