London trails Paris and Milan due to end of VAT-free shopping says Harrods boss

01-01-23

London is losing the race against Paris and Milan when it comes to attracting exclusive luxury goods and the highest-spending shoppers, the boss of Harrods has said.

In an interview with The Telegraph, Harrods MD Michael Ward said that the reason is the abolition of VAT-free shopping for tourists, almost two years ago, which has deterred luxury shoppers from visiting the British capital to spend their cash.

He said that the luxury department store is having to work a lot harder in order to source designer goods that shoppers can't get elsewhere.

The ability of tourists from countries outside the EU to claim back their VAT at the airport was a crucial factor in attracting many of them to shop in Britain before the abolition of the perk at the start of 2021.

Retailers had hoped that Britain’s exit from the EU would mean the perk would be extended to European shoppers as well. Instead, the UK government abolished it for everyone. And despite the one good point of the disastrous mini-budget last year being VAT-free shopping's restoration, new Chancellor Jeremy Hunt and Prime Minister Rishi Sunak re-abolished it shortly after.

Ward highlighted the need for British luxury stores to be able to access exclusive products in the absence of VAT-free shopping, especially now that Chinese shoppers are able to travel more freely. He said to the newspaper: “If I'm going to buy a Christian Dior saddlebag for £2,000, why wouldn't I buy it in Paris? We've got to make it up by being smarter in what we're offering to that customer. We want more exclusive products, so that they can't buy the same thing in Paris.”

Of course, if brands expect shoppers to spend less in London, than in other key cities, they're going to be less likely to offer such exclusives.

He also called on the British government to work harder to attract tourists to London. “We're competing against Europe, which has a very comprehensive tourism strategy and that is integrated across the whole of Europe. We need to be ahead of that,” he said.

He believes Britain should make more of its 'soft culture' advantage that many European destinations can't compete with.

While the government launched a tourism recovery plan in the summer that aimed for a return to pre-pandemic visitor numbers by 2023, those numbers remain significantly down and the amount being spent is down as well.

Ward, who also heads luxury body Walpole, said the government has got its sums wrong in terms of the extra revenue it expects to generate from abolishing the shopping perk. The government thinks it will bring in an extra £2 billion annually. But several research reports have said the figures are wrong and that restoring VAT-free shopping would not only generate billions in extra spending directly in shops, but also billions more in other tourist spending.

The Harrods MD said he’s asking the government “to do what they did with all other aspects of the budget. Let’s just have an independent review into it”.