London, renowned for its luxury shopping scene, is facing a worrying trend as shoppers from the United States, China, and the Gulf region are opting for Paris and Milan instead. The reason for this shift is the tax benefits offered in these cities, which allow shoppers to reduce the cost of their purchases. Unfortunately, with the UK’s departure from the European Union, tax-free shopping for overseas visitors has ended, leaving London’s luxury retailers concerned about their appeal as a shopping destination.
To combat this issue, industry leaders, including Harrods, Harvey Nichols, Cadogan, and The Lanesborough Hotel, have joined forces with hundreds of retailers to urge the government to reinstate tax-free shopping for international visitors. The loss of these shoppers has a significant impact, as international visitors currently contribute a staggering £28.4 billion ($34.5 billion) annually to the UK’s GDP, with Knightsbridge and the King’s Road playing a crucial role in this.
Data from Global Blue, an international tax refund company, reveals that while spending by US visitors in Britain has recovered to pre-pandemic levels seen in 2019, their spending in France, Spain, and Italy has surpassed those levels. Furthermore, British shoppers themselves are increasingly spending more in the European Union, where they can reclaim the value-added tax (VAT) charged on goods. This emphasizes the need for the UK to restore the tax incentive to maintain its competitiveness in the global luxury retail market.
The impact of losing luxury shoppers reaches beyond retailers, affecting the entire tourism ecosystem, including hotels, restaurants, taxis, museums, and theaters. In response to industry concerns, the government argues that tourists can still enjoy tax-free shopping in the UK by shipping goods directly to an overseas address and justifies the removal of VAT-free shopping as a revenue-raising measure. However, industry executives stress that the absence of this tax incentive will have far-reaching consequences.
Major luxury brands are already feeling the effects of the VAT rule change. Burberry, the largest luxury retail brand in Britain, warned last year that London was losing its appeal compared to other European cities. Handbag maker Mulberry also cited the removal of VAT-free shopping as a significant factor in the closure of its Bond Street store. Sarah Jaconelli, director of communications for the New West End Company, which represents 600 businesses, describes the situation as a self-inflicted setback and questions why someone would choose to shop in the UK when they can get a 20% discount in Europe.
Global Blue’s data paints a stark picture of the shift in shopping preferences among international visitors. While spending by American visitors in the UK has bounced back to 101% of 2019 levels in 2022, France and Italy have exceeded those levels at 256% and 226% respectively. Similarly, visitors from Gulf states have only reached 65% of 2019 spending levels in the UK, while France stands at 198%, Italy at 166%, and Spain at 158%. Moreover, a survey of Chinese tourists conducted by Global Blue reveals a decline in interest in visiting the UK. In 2019, Britain was the second most popular European destination for Chinese tourists. However, the latest survey indicates that only 42% of Chinese tourists plan to visit the UK, down from 70% in 2019. Spain, Italy, and Germany have become more popular choices instead.
Industry insiders emphasize the importance of Chinese shoppers as they have historically been the most price-sensitive demographic. The availability of tax-free shopping was crucial in attracting them, and now the UK is the only country in Europe that does not offer this incentive. Harrods managing director Michael Ward warns that if no action is taken, the impact will extend beyond just the stores, affecting hotels and restaurants in London, which are already feeling the absence of international shoppers.
Hugh Seaborn, Chief Executive of Cadogan, the main landlord in Chelsea and Knightsbridge, also highlights the need for government intervention, stating that the UK is at a disadvantage compared to its neighboring EU cities when it comes to incentivizing international travel. The repercussions of the growing preference for shopping in other European cities are starting to be felt in London, and the luxury retail industry is calling for urgent action to protect its position and maintain its appeal to international shoppers.
As London faces the risk of losing luxury shoppers to Paris and Milan, it becomes imperative for the government to reinstate tax incentives to attract international visitors. Failing to do so would have far-reaching consequences, impacting not only luxury retailers but also the wider tourism industry. London’s status as a premier shopping destination is at stake, and it is crucial for the city to regain its competitive edge in the global luxury retail market.
Useful links:
1. VisitBritain
2. Global Blue
