Luxury trade association Walpole is calling for the reinstatement of tax-free shopping for tourists which it claims could result in direct retail sales of at least $1.5 billion (£1.2 billion) annually and attract an additional 600,000 visitors to Britain.
The group—which has around 250 members including famous brands, retailers and hotels like Burberry, Claridge’s, Harrods, The Macallan, and Wedgwood—has commissioned a report which indicates that the U.K, has lost vital revenue since tax-free shopping was abandoned on December 31, 2020.
The government decision to withdraw the VAT Retail Export Scheme has made Britain the only European country not to offer tax-free shopping to non-EU tourists, which, at the time, was argued by several parties to be a counter-productive move.
Walpole’s report, titled What It’s Worth: Enabling the Return of the £30bn High-end Tourism Sector, was launched at the British Luxury Summit on Monday. It includes testimonies from several companies on the role that tourism has played in Britain’s economy pre-pandemic, while emphasizing the loss of revenue—due to removal of tax-free shopping—to markets like Italy and France.
With Queen Elizabeth’s Platinum Jubilee celebrations fast approaching, and Covid-19 restrictions lifted in many countries, Britain should see some bumper retail sales from travelers. However, based on the recent track record, the omens are not great. According to data from tax-refund specialist Global Blue, there is now a clear difference in retail purchasing in the U.K. and Europe.
Comparing American visitor spending in the EU and in Britain in pre-pandemic Q4 2019 versus Q4 2021, U.S. shopping in the EU had returned to 91% while the U.K. is only at 49%. An even worse disparity is seen in another crucial segment: high-spending visitors from countries in the Gulf Cooperation Council (GCC) such as Qatar, Saudi Arabia, and the United Arab Emirates. Over the same quarters their retail spend had soared by 153% in the EU, but Britain was only at 60%. This is a particular worry given that the GCC previously made up 26% of Britain’s tax-free spend.
Harrods pivots in Knightsbridge and Heathrow
GCC nationals had a penchant for one store in particular: Harrods. Pre-pandemic, the luxury department store represented half of the Middle Eastern spend in the entire U.K. “But our footfall is now 30% below 2019 levels and it’ll probably take us two to three years to fully recover,” said Michael Ward, managing director of Harrods. “With many high-value tourists now shopping in the EU, we’ve had to make our boutiques different to those in Paris.”
What Harrods is doing today is creating one-off/unique presentations such as its Prada Chalet pop-up or Gucci x Balenciaga collaboration. “Today, if a high net worth individual purchases a handbag at London Harrods, it might not be tax-free anymore, but they’ll buy it because they know it doesn’t exist elsewhere,” said Ward. However, this strategy requires a lot of extra work.
At the airport too, where the tax-free scheme is also no more, Harrods has effectively commodified its stock around holiday pick-me-ups. “Travelers are no longer buying £1,000 handbags when ﬂying from Heathrow Airport because of £200 VAT savings, but they will buy a pair of swimming trunks or £200 polo-shirt instead,” Ward added.
Tourism—both domestic and international—contributed 4% of Britain’s GDP in 2019 with a value of £85 billion. Of that, £30 billion was attributed to high-end tourists—defined as those who stay in luxury accommodation including five-star hotels. These visitors typically spend 14x more than the average.
In a statement Walpole said: “One pound spent by those staying in high-end accommodation in the U.K. generates £8 of value in other industries, such as culture, entertainment and luxury shopping, which in turn supports the 160,000 jobs across the UK luxury sector.” This ‘virtuous circle’ also drives the desirability of Britain as a destination.
In addition to tax-free shopping, the What It’s Worth report explores the potential for other initiatives to attract high-end tourism and subsequent economic growth, including a wider international electronic visa waiver scheme and extended Sunday trading hours in the luxury retail hubs of the West End and Knightsbridge.
Prior to launching its U.K. report Walpole, in partnership with luxury associations in the European Cultural & Creative Industries Alliance (ECCIA), commissioned Bain & Co to produce a pan-European study. High-end Tourism—A Strong Driver For Europe explores the impact and value of this segment to the European economy. The report, produced under the presidency of Italy’s luxury association Altagamma, will be published this summer.