How Brexit is Levelling Down Luxury Brands

How Brexit is Levelling Down Luxury Brands

Britain’s economic and cultural prowess is suffering due to post-Brexit tax changes, reports Sascha Lavin

As the Government publishes a 100-page ‘benefits of Brexit’ paper today, luxury brands are calling on Boris Johnson to rethink a post-Brexit policy that is harming their international competitiveness.

“It’s an enormous mistake by the Treasury,” said Robert Ettinger, CEO of the British leather goods manufacturer, Ettinger, assessing his first year of business since the Government scrapped the VAT Retail Export Scheme (VAT RES) – an initiative that previously awarded overseas visitors a tax refund of up to 20% on goods bought in the UK. 

Counting the Prince of Wales among its clients, Ettinger is one of the few to still produce leather goods in Britain, with a factory in Walsall, on the outskirts of Birmingham.

“A lot of people, if they’re not saving their 20% VAT in London, are going to go to Paris or Rome or Florence to buy the luxury goods there,” Ettinger told Byline Times. 

Although Johnson told the UK to prepare for “an international tourism boom” last week, Ettinger’s predictions are less optimistic.

“I think they will come back by 2023,” he says. “But not in such numbers and I don’t think they’ll spend as much money here.”

A total of 277,000 tourists visited the UK between April and June, according to the latest figures from Visit Britain – down 97% compared to the same period in 2019 – while total spending fell by 94% to £386 million.

Indeed, tourism has fallen markedly around the world because of the COVID-19 pandemic and Tamara Cincik, CEO of UK fashion industry think tank Fashion Roundtable, told Byline Times that the Treasury’s decision to end VAT RES dealt a further blow to British brands.

“At a time when hospitality and tourism are on their knees, this makes no sense,” she said. 

Burberry’s British stores welcomed fewer international shoppers last year than their European counterparts. Finance director Julie Brown told investors in November that although there had been “good progress in continental Europe” since the height of the pandemic, the UK “remained challenged by reduced tourists in London”. 

The Cambridge Satchel Company has been the latest casualty of the post-Brexit tax shake-up. The brand was forced to close its Oxford store after changes to the VAT RES scheme meant that buses of international shopping tour groups no longer descended on the city. 

But, according to the CEO of British luxury trade group Walpole, the negative impact of the post-Brexit rule changes isn’t limited to the economy.

“Our famous-name brands export reputation as well as goods – they’re a fantastic global calling card for British quality, craftsmanship and creativity,” Helen Brocklebank told this newspaper.

Pointing to Fortunum and Mason’s recent decision to stop EU deliveries because of Brexit bureaucracy, she added: “Any barriers to trade create not only an economic impact but also a missed opportunity when it comes to Britain’s soft power around the world.”

---

The Death of Luxury London? 

London has historically been the go-to destination for luxury goods, with Harrods, Bond Street and Savile Row part of every international spender’s vocabulary. Savvy shoppers have also been enticed to the capital in search of a bargain – a 2016 report from Deloitte found that the UK was the most affordable luxury market in the world.  

In 2016, a shopper from China in search of a ‘Speedy 30’ handbag from Louis Vuitton without the hefty price tag of $1,115 in their home country, would find the best deal in London where they would be charged $802, compared with $850 in Paris. Today, the ‘It’ bag costs $194.63 less in Paris than in London, without accounting for the additional 20% discount offered in France under the VAT RES scheme.  

Ryan Palmer, co-founder of the London Sock Company, told Byline Times: “London has always been synonymous with fashion and style. It is really important that we don’t get complacent as a result of something that we have historically been known for and celebrated.”

But, according to Palmer, the end of the VAT RES scheme has made London less attractive to international big-spenders.

“I don’t think we’re making our lives easier by having negative impacts on tax free shopping which was an incentive to encourage people as another reason to come to London,” he said. 

The Centre for Economic and Business Research found in 2020 that 90% of international shoppers were less likely to spend in stores on their next visit to the UK due to the end of VAT-free shopping. 

And it’s not just international customers that British luxury brands are losing. UK shoppers are increasingly choosing Paris and Milan to make their purchases, rather than shopping at home.

British tourists now qualify as non-EU visitors in European countries and are taking advantage of their VAT RES schemes, according to recent data from the tax-free shopping company Global Blue. UK residents are spending around €5.1 million on tax-free shopping per week in European countries, with 35% of sales taking place in France, 23% in Italy and 15% in Spain. 

Last summer, Spanish department store El Corte Inglés launched a campaign with Iberia airlines to promote tax-free shopping to British tourists. Analysis by Global Blue found that in the first nine months of 2021, British visitors were the biggest spenders in Spain, averaging €1,337 in purchased goods, compared with an annual average of €357 for all nationalities in 2019. 

A Treasury spokesperson told Byline Times: “Our multi-billion-pound support for businesses has helped – and continues to help – millions of firms across the UK, through extension to loan schemes, deferred VAT payments and business rate holidays.

“Around 92% of non-EU visitors to the UK didn’t use the VAT Retail Export Scheme and VAT-free shopping is still available. Retailers can offer VAT-free shopping to overseas visitors who purchase items in store and have them sent directly to their overseas addresses.”