London’s luxury shops are concerned that the city is losing its allure as a shopping destination, as tourists from the United States, China, and the Middle East are flocking to Paris and Milan, where tax incentives still allow them to reduce the price of their purchases.
As finance minister Jeremy Hunt prepares to deliver the government’s budget statement on Wednesday, the sector is urging him to revive sales-tax-free shopping for foreign tourists, which stopped in 2020 as a result of Britain’s exit from the European Union.
Hundreds of companies, including the department stores Harrods and Harvey Nichols, the property manager Cadogan, and The Lanesborough Hotel, have united to push Hunt to amend the restrictions.
Before Harrods opened for the day, Steve Medway, CEO of the Knightsbridge and King’s Road Partnerships, told Reuters, “We’ve heard from certain businesses that they’re prioritizing Paris for investment in shops.”
They are aware of the sales.
Knightsbridge and King’s Road play a significant role in the yearly contribution of international tourists to the UK’s gross domestic product, which is estimated at $34.5 billion.
Global Blue data indicates that while U.S. travelers’ spending in the United Kingdom has returned to pre-pandemic levels for 2019, their spending in France, Spain, and Italy has soared.
To exacerbate the issue, British consumers are increasing their spending in the European Union, where they may also recover the value-added tax (VAT) on items.
Today, in light of indications that some luxury labels are spending more in their French boutiques on the Champs Elysees than in their London locations, industry leaders argue that the tax advantage should be reinstated to maintain Britain’s competitiveness.
They contend that its continuous absence would affect the whole tourism industry, including hotels, restaurants, taxis, museums, and theaters.
The government states that travelers may still enjoy tax-free shopping in the United Kingdom if they ship products directly to an overseas address and that it eliminated tax-free shopping to increase money after determining that it would not have a significant impact on tourism.
Own goal
Last year, Burberry, the largest British luxury retail company, warned that London was losing business to other European cities due to the VAT law. Last month, handbag manufacturer Mulberry cited the elimination of VAT-free shopping as a significant reason for the closing of its Bond Street store.
Britain scored a tremendous own goal, according to Sarah Jaconelli, director of communications at the New West End Group, which represents 600 firms. “If you can go to Europe and receive a 20 percent discount, why would you?”
The statistics from Global Blue is startling. It indicates that in 2022, American tourists to the United Kingdom spent 101% of 2019 levels, whilst France and Italy spent more than twice as much, at 256 and 225% respectively.
For tourists from Gulf states — Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates — UK sales barely returned to 65 percent of 2019 levels. In comparison to 2019, France was at 198 percent, Italy at 166 percent, and Spain at 158 percent.
More worrisome for the future, a poll by Global Blue of 10,000 Chinese tourists who visited Europe in 2019 revealed that Britain was also losing favor.
While it was the second most popular destination among big European nations, after France, in 2019, just 42 percent of respondents now want to visit Britain, down from 70 percent in 2019, with Spain, Italy, and Germany being now more popular.
“The Chinese are usually the most price-sensitive group,” said Medway, whose alliance represents hundreds of firms in premium retail centers.
This is why tax-free was so crucial to them, and we are now the only European country that does not give it.
The managing director of Harrods, Michael Ward, stated that if no action was done, the effects would extend well beyond the stores, with hotels and restaurants in London already reporting a lack of international consumers.
Cadogan, the largest landowner in the west London neighborhoods of Chelsea and Knightsbridge, whose estate encompasses more than 90 acres, also urged the government to take action.
Hugh Seaborn, chief executive, stated, “At a time when we should be focusing on encouraging international tourism, we are now at a marked and unneeded disadvantage compared to our neighboring EU cities.”
Tuesday morning, 22-year-old Chinese resident Hang Hen and a buddy were out shopping on New Bond Street. He stated that he had not previously pondered the VAT problem because he often spent his parents’ money.
