London at risk of luxury shoppers turn to Paris, Milan

London’s luxury retailers have been concerned about the city’s shopping traction, as tourists from the U.S., China and Arab Gulf head to Paris and Milan, where tax breaks offer a way to cut purchase costs.

The luxury shopping industry wants Finance Minister, Jeremy Hunt, to reinstate sales-tax-free shopping for foreign visitors, which ended in 2020 following the Brexit, as he plans to present the government’s budget statement on Wednesday.

Big names in the industry like department stores, Harrods and Harvey Nichols, property manager, Cadogan, and The Lanesborough Hotel are standing with retailers to pressure the Minister.

“We’ve heard from some brands that they’re prioritising Paris for investment in stores,” said Steve Medway, CEO of the Knightsbridge and King’s Road Partnerships. International visitors add up to £28.4 billion to the British GDP annually, he added.

As some luxury brands shift to investing in their French stores on the Champs Elysees, the industry’s only hope is restoring the tax incentive, fearing the effect on the entire tourism ecosystem, like hotels, restaurants, taxis and museums.

While U.S. tourist spendings in the UK went back to 101 percent of its 2019 levels in 2022, their spendings in France went to 256 percent and in Italy to 226 percent.

Sales of tourists from Arab Gulf countries; Bahrain, Kuwait, Qatar, Saudi Arabia and UAE, were back to 65 percent of 2019 levels, while they were back by 198 percent in France and by 166 percent in Italy.

A Global Blue survey of 10,000 Chinese tourists in Europe showing the UK being less attracting to them raises concerns about the Chinese tourists’ purchasing attitudes.

While the UK was the second most popular destination, right after France, in 2019, the survey showed that only 42 percent were planning to visit the UK, after previously being 70 percent in 2019.

Even British shoppers themselves are turning to spend more in European Union countries, with the advantage of the value-added tax (VAT) charged on goods.

The UK’s biggest luxury retail brands, Burberry and Mulberry, have pointed at the VAT rule being the main reason for London’s loss to EU countries. Mulberry referred to the reduction of VAT-free shopping as the main reason for the brand closing its Bond Street store last month.

“At a time when we should focus on incentivizing international travel, we are now at a distinct and unnecessary disadvantage to our neighboring EU cities,” said Chief Executive of Cadogan, Hugh Seaborn.

Despite complaints from the industry, the government said tourists can enjoy UK tax-free shopping when they ship goods directly to an overseas location. The government also mentioned that the reason for cancelling VAT-free shopping is to increase revenues, and that it would not greatly impact tourism as it showed in an assessment.