The Long View by Vogue Business: How the UK redrew Europe’s luxury map

Since the scrapping of the VAT refund policy, some luxury retailers confide that they have had to apply discounts to keep their loyal customers or that they would arrange for goods to be sent to other stores in other countries — often in France, Monaco and Italy — where their clients could complete their purchase and reclaim the VAT (which is 20 per cent in the UK across all luxury categories except children’s clothing).

Discount practices have weighed on the balance sheet, while the transfer of merchandise has resulted in a loss of sales in their UK-based businesses, but it’s deemed worth it to preserve the relationship with top-spending clients. A salesperson at the London store of a multinational jewellery house says that, while in the past foreign shoppers used to buy in the UK and would collect their purchases on their way back home, since 2021, they visit their salesperson in the UK but the store arranges for the goods to be picked up in Paris, Milan or Monaco. “I keep the relationship, which is key, and I get a cut on the sale.”

Watches of Switzerland’s Duffy says has increased marketing activity with local clients to help offset some of the negative impacts of the removal of the VAT refund. Nevertheless, he observes that some British clients are travelling to Europe to purchase tax-free.

In an interview with Bloomberg, Burberry’s chief financial officer, Ian Brimicombe, said his company is in talks with the government to secure other forms of incentives — cash, vouchers, credit — which could lure back tourists. Burberry declined to comment further on the talks for this article.

Harrods has looked to exclusive collaborations and products in the hopes of tempting international shoppers to spend. “No tax-free shopping is a major disadvantage in the competition to attract high-spending international visitors. To counteract this disadvantage, we have increased our focus on creating, in collaboration with our brand partners, unique experiences, such as the spectacular immersive experience with Louis Vuitton at the start of the year and the incredibly popular Prada Caffè, which has been delighting customers,” says Harrods’s Ward. “Together with being able to offer rare and exclusive items that cannot be found elsewhere, we are working hard to continue to pull visitors to Harrods despite the tax advantages that shopping elsewhere may offer.”

At an impasse

The government isn’t budging. In an interview with LBC Radio in July, UK prime minister Rishi Sunak defended the current VAT policy, which he implemented when he was chancellor of Boris Johnson’s government. Sunak insisted that the VAT rebate benefits a small portion of businesses predominantly located in London.

During the debate on 7 September, Atkins said it would be wrong to assume that shoppers get the full 20 per cent back on the VAT refund, because “companies processing refunds, who are sometimes the retailers themselves, charge significant administrative fees for the service”. She added that one-third of VAT RES users surveyed by HMRC were charged more than 50 per cent of their refund in fees, and the average was 36 per cent, so the savings to the consumer may be “far less” than the 20 per cent rate of VAT.