The Wall Street Journal reported that London as a luxury shopping destination is in jeopardy due to the UK changing duty-free rules for foreign tourists. In late 2020, the UK eliminated duty-free shopping for international visitors. The reason was that the British Treasury could no longer afford the annual public costs of £2 billion. Therefore, London has become Europe’s only major tourist city where tourists do not get 20% VAT back.
However, as the tax exemption regulations were changed, the UK was in a crisis. Tourists from the US and the Middle East began traveling to Europe last summer after COVID-19. According to tax refund analysis firm Global Blue, VAT refunds for Middle Eastern travelers who visited Europe in January 2023 jumped 224% compared to January 2019. The growth rate of American tourists was 297%, which was higher due to the stronger dollar. In addition, wealthy tourists are expected to travel to Europe from China, which has abolished the zero-corona policy. Therefore, France and Italy are crowded with tourists, but Britain, which abolished the duty-free regulations, is missing out.
Declining UK sales do not seriously impact global brands such as Dior and Gucci because of large stores in other European countries. Britons are reportedly traveling to EU countries and spending money on duty-free goods. Even Burberry, a British luxury brand, was not hit hard welcoming customers at stores outside the UK. Burberry sales from Middle Eastern customers at European stores increased 122% from 2019, far exceeding the 14% growth rate at UK stores.
The problem is brands and luxury department stores that are highly dependent on sales in the UK. These London retailers are pleading with the British government to revive duty-free rules for foreign tourists. Mulberry, a London stock market-listed company, said half of its sales came from overseas tourists before the tax rules were changed, but that percentage has now fallen to less than 5%.
Experts predict that the London property rental market will also be hit if this trend continues. According to real estate company Cushman & Wakefield, London’s New Bond Street in 2022 gave way to Milan Via Montenapoleone, behind the world’s third most expensive shopping district and Europe’s top most expensive shopping district.
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