The British luxury brand Burberry will be robbed of its “home market advantage” on the eve of Brexit if the British government does scrap tax-free shopping because the wealthy international tourists mainly choose to holiday in mainland Europe rather than in the United Kingdom.
Those foreign tourists who traditionally accounted more than half of its UK sales, could “turn to buying in Europe … This represents a challenge as we could lose our home market advantage competing against brands in Paris and Milan,” warned Julie Brown, the chief operating officer of Burberry.
The retail and tourism circles have been rattled by the decision of the UK Treasury to end tax-free shopping on 31 December. The British government wants to bring personal duty and tax systems in line with international norms at the end of the Brexit transition period which is on December 31.
Almost £18bn on shopping trips, hotels and days out is spent every year by millions of wealthy tourists from China and the Middle East that also come to Britain. Under the current retail scheme, these tourists form outside of the European Union get a significant benefit because they can reclaim the 20% VAT that they pay while purchasing luxury products such as clothes, handbags and jewellery.
The purchase price gets reduced by a sixth by the removal of VAT and this ultimate discount to the tourists is particularly significant and important for luxury brands and department stores such as Selfridges and Harrods since they all offer costly sell designer clothing and accessories.
For example, eligible travellers able to reclaim nearly £132 of the price of Burberry’s popular Lola bag whose prices starts at £790.
There would potentially be a 7 per cent fall in the number of non-EU visitors, which is equivalent of 1.2 million people, by withdrawing the retail scheme, claimed a recent report by the Centre for Economics Research, which also noted a consequent job loss of up to 41,000 people working in the British luxury industry.
The government decision is being sought to be overturned through a judicial review by Heathrow airport.
The comments by Brown were made while the company reported a 31 per cent dip in its sales and a 62 per cent drop in its profits, at £73m for the last six months because of the novel coronavirus pandemic.
She said that the business faced “three layers of challenge on top of each other” – due to the pandemic related crisis as well as the tax-free shopping issue and Brexit.
Burberry’s Italian chief executive, Marco Gobbetti has been attempting to revamp the company over the past three years with plans of transforming this brand into a super-luxe brand which could easily compete with the likes of Gucci and Dior – companies that have higher prices but also higher profit margins.
Its longstanding creative chief, Christopher Bailey, was replaced with Riccardo Tiscim in 2018 by the brand that was previously best known for its trenchcoats and signature check.
(Adapted from TheGuardian.com)