The UK’s status as a luxury shopping destination is under threat due to the removal of the tax-free shopping perk for tourists. A recent survey conducted by ESW (formerly eShopWorld) reveals that almost half of luxury shoppers are planning to make fewer visits to the UK and spend less money with UK brands now that tax-free shopping has been removed. This could have a significant impact on the UK’s tourism industry, particularly as China’s National Day Golden Week approaches. Among Chinese respondents, the majority stated that they will make fewer visits to Britain and spend less on British brands once travel restrictions are lifted.
The change in tax-free shopping rules came into effect at the beginning of this year. Previously, global shoppers could buy luxury items and claim back the Value Added Tax (VAT) at the airport when leaving the country. However, under the new rules, shoppers can still get a VAT refund if they choose to have their purchases shipped separately to their homes. Retailers criticized these new rules, stating that they would be unpopular, confusing, and could lead to job losses. Initially, the impact of the rule change was limited due to the lockdown and low levels of international tourism. However, as tourism starts to pick up again, the UK may face negative consequences.
ESW’s survey, which involved nearly 15,000 consumers across 14 countries, suggests that the UK’s luxury sector may suffer as international tourism recovers. In addition to the 46% of respondents who are less likely to visit Britain for luxury shopping, another 43% believe that the removal of tax-free shopping reduces the country’s competitive advantage in the luxury sector. Moreover, 46% of respondents stated that they would prioritize travel to other shopping destinations that still offer tax-free shopping when making their travel plans.
Of particular concern is the impact on Chinese shopping tourists. Bain & Company predicts that China will account for almost half of global luxury spending by 2025. However, the UK may not experience as significant a loss proportionally as it would have in the past. Chinese consumers are now more inclined to shop for luxury goods domestically, as the pandemic has accelerated digital development in their own market and many luxury brands have opened stores in China. Around 70% of Chinese luxury shoppers now make their purchases within China itself.
While a significant percentage of respondents who previously traveled abroad to shop indicated that they would resume international shopping holidays once fully vaccinated, many also expressed that they would shop online while traveling. This indicates that bringing back the golden age of tax-free shopping may prove challenging not only for the UK, but for other countries as well. In fact, a notable minority stated that they would no longer take international shopping holidays.
This shift in consumer behavior means that retailers in tourist destinations will need to work harder to attract shoppers in the future. Martim Avillez Oliveira, Chief Commercial Officer, EMEA and APAC at ESW, emphasized the need for retail and luxury brands to diversify and balance their distribution to thrive in the post-pandemic world. With international travel not expected to return to pre-pandemic levels until 2023 or 2024, brands must find alternative ways to engage with and sell directly to their highest-value shoppers who have a passion for British luxury and heritage brands.
Useful links:
1. The Guardian: End to tax-free shopping means comeback for VAT refund scams
2. Global Blue: Key findings on global shopping trends (Oct-Dec 2020)
