by Within the gilded walls of luxury department store Harrods, Christmas is in full swing. Festival classics blast out of the speakers, and wafts of perfume and chocolate mingle in the maze of halls. Between sections, stairs are lined with sweeping golden garlands.
But, in one of the key weeks leading up to Christmas, it seems shoppers are keen to spend big. Tourists browse clothes rails and try on £700 Fendi sandals and £300 Miu Miu sunglasses, but at the tills, things are moving a little more slowly.
“Just because the tourists are here in the UK doesn’t mean they’re spending,” says Michael Ward, managing director of Harrods. “People are traveling to London during the week and enjoying it here, but then catching the Eurostar to Paris and doing all their shopping there.”
Among luxury leaders, the frustration is palpable. This week, when the Chancellor stood up to deliver his Autumn Statement, some were still hopeful that he might heed their pleas to bring back tax-free shopping. However, no announcement was made.
“Since it wasn’t described before the Autumn Statement, we thought it probably wasn’t coming,” says Tom Athron, chief executive of Fortnum & Mason. “So when it wasn’t announced, it wasn’t a huge shock.”
But, Athron says he was disappointed, “because timing is everything”.
Already the evidence is accumulating that tourists are visiting UK cities, but deciding not to spend in Britain. Over Black Friday, central London was 13pc busier than last week, according to MRI Springboard figures. But retailers remain cautious about what people are spending.
According to a recent study by the New West End Company, the number of visitors from China was almost back to pre-pandemic levels in September, down just 2pc compared to 2019. However, Chinese tourist spending in the West End 60pc lower than before the Pandemic hit.
At the same time, tourist spending in France and Spain, where overseas visitors can still claim VAT back on their shopping, has more than doubled in recent months. Paris in particular has taken measures to attract more visitors, installing tax refund kiosks at its Gare du Nord railway station.
Ward says Harrods has taken steps to protect against a downturn in spending, adding more exclusive areas. However, he admits that it is extremely difficult for UK shops at the moment. “Because there is a sensitivity to pricing. Not only have we lost the overseas traveller, but all the British tourists are going to Paris to claim their VAT back.”
This is a critical issue for British luxury brands. If someone is shopping in the UK, says Ward, “they will buy a lot more British-made product than if they go to Paris or Milan”. Ultimately, higher sales of British luxury goods will lead to more manufacturing jobs in areas such as Somerset, where Mulberry bags are produced, and rural Scotland, where Johnstons of Elgin makes its cashmere, says Ward.
The Center for Economic and Business Research (CEBR) claims that ending duty free shopping costs around £10.7bn in lost GDP. This includes a win for UK cities who lose the added benefit of tourists spending on hotel rooms, restaurants and theater tickets when they decide to go elsewhere in Europe.
The Treasury responded by saying that VAT-free shopping would cost Britain back around £2bn a year at the time, hampering measures to pay down debt.
In policy documents released last week, however, there were early signs that the Chancellor’s position may have changed. “The Government will continue to take submissions and consider this new information carefully, along with wider data,” he said in notes released as part of the Autumn Statement. Insiders suggested that this could be taken to mean that the Treasury would be revisiting the policy for the spring budget, although he said that nothing was certain.
Ward says it’s a step in the right direction, but the key question is whether the Government agrees that tax-free shopping needs to be brought back. “And if they do, how would they even do it?” Ward said. “The old system couldn’t deal with it. It was creaking at the seams. And you’d have millions more Europeans trying to claim under the scheme that wouldn’t have been able to before, so we can’t go back to where we were before.”
It’s an issue that’s going to be seen some way down the line right now. As retailers get into the swing of the Christmas period, many will be hoping to attract tourists to spend in their stores.
“The one thing London still has is that it’s seen as the international capital of the world,” says Ward. “There is something very special about being in London at Christmas.”
Whether this means tourists will spend their money in the capital remains to be seen. Hunt may be revisiting duty free shopping next spring but by then Christmas will be a distant memory. For Ward, there is a risk that the main shopping streets will only be in a “downward spiral”. “Because we can’t just say, ‘we’ll solve the problem’,” he says. “Government policies must help us.”
