Christmas is drawing ever closer within the gilded walls of luxury department store Harrods. While festive classics blare from the speakers, breezes of perfume and chocolate mingle in the labyrinth of halls. The stairs between the sections are covered with large golden garlands.
But shoppers’ appetite for big spending appears to have diminished in one of the critical weeks in the run-up to Christmas. Tourists browse the clothing racks and try on £700 Fendi sandals and £300 Miu Miu sunglasses, but things are a little slower at the tills.
“Just because tourists are in the UK doesn’t mean they’re spending,” says Michael Ward, managing director of Harrods. “People travel to London on weekdays and have fun there, but then catch the Eurostar to Paris and do all their shopping there.”
Frustration is palpable among luxury chefs. When the Chancellor stood to deliver his Autumn Statement this week, some were hopeful that he might have listened to calls for the return of tax-free shopping. However, no announcement took place.
“The lack of follow-up before the Fall Announcement made us think it probably wouldn’t come,” says Tom Athron, CEO of Fortnum & Mason. “So it wasn’t a big shock when it wasn’t announced.”
But Athron says he’s disappointed because “timing is everything.”
Evidence is already accumulating that tourists are visiting UK cities but deciding not to spend in Britain. Central London was 13 per cent busier on Black Friday than last week, according to MRI Springboard figures. But retailers are cautious about how much people spend.
The number of visitors from China was almost back to pre-pandemic levels in September, down just 2 percent compared to 2019, according to a recent study by the New West End Company. However, spending by Chinese tourists in the West End remained 60 percent lower than before. before the epidemic started.
At the same time, tourist spending has more than doubled in recent months in France and Spain, where visitors from abroad can still claim back VAT on their purchases. Paris has specifically stepped up its measures to attract more visitors by installing tax refund kiosks at the Gare du Nord train station.
Ward said Harrods was taking steps to counter the decline in spending by adding more specialty pieces lines. However, he admits the situation is particularly difficult for UK stores at the moment. “Because there is sensitivity about pricing. “Not only have we lost overseas travellers, all British tourists will be heading to Paris to get their VAT back.”
This is a very important issue for British luxury brands. If someone is shopping in the UK, “they will buy several times more of a British-made product when they go to Paris or Milan,” says Ward. Ultimately, Ward says, higher sales of British luxury goods will lead to more manufacturing jobs in regions such as Somerset, where Mulberry bags are produced, and rural Scotland, where Johnstons of Elgin produces cashmere.
The Center for Economics and Business Research (CEBR) claims that abolishing tax-free shopping would cost around £10.7bn in lost GDP. This includes UK cities missing out on the extra benefit spent on hotel rooms, restaurants and theater tickets by tourists who decide to head elsewhere in Europe.
The Treasury responded by saying that reintroducing VAT-free shopping would cost the UK around £2bn a year and would hinder moves to repay the debt.
But there were early signs in policy papers released last week that the Chancellor’s stance may be changing. “The Government will continue to carefully consider this new information, alongside wider data, and accept representations,” he said in notes published as part of the Autumn Statement. Insiders have suggested this could mean the Treasury will look again at its spring budget policy, but nothing is certain.
Ward says it’s a step in the right direction, but the real question is whether the Government accepts that tax-free shopping needs to be reintroduced. “And if so, how do they do it?” Ward says. “The old system literally couldn’t cope. It was creaking at the seams. “And there will be millions of extra Europeans who want to claim under this scheme who were not able to do so before, so we cannot go back to where we were before.”
This is an issue that seems some way ahead for now. As retailers find themselves in the whirlwind of the Christmas period, many are hoping they can encourage tourists to spend in their stores.
“The one thing London still has going for it is that it is seen as the international capital of the world,” says Ward. “There is something very special about being in London at Christmas.”
It is not yet known whether this means tourists will spend their money in the capital. Hunt may be revisiting tax-free shopping next spring, but by then Christmas will be a distant memory. The risk, according to Ward, is that the leading shopping streets could find themselves in a “downward spiral”. “Because we can’t say ‘we’re going to solve the problem,'” he adds. “Government policies need to help us.”