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Cancellation of VAT refunds to hit UK luxury brands and retailers


According to the New York Times, the cancellation of VAT refunds came as a major shock to UK luxury brands and retailers that have come to depend on spending by foreign travelers as a critical part of their annual sales. Although they make up only 5 per cent of non-E.U. travelers in the United Kingdom, Chinese tourists tip the scales in terms of high-end spending, accounting for nearly a third of VAT refunds. For luxury retailers, the concern for 2021 and beyond is that, even if Chinese tourists are able to resume international travel, they may eschew luxury shopping in London for Paris, Madrid, or somewhere else (including, as we’ve seen this year, at home in China).

While some British brands and department stores are likely to say that the loss of the refund program won’t hurt their business — believing that tourists will still seek out the “experience” of in-in person shopping from quintessentially British brands — this move will be a massive post-holiday “gift” for brands and retailers elsewhere in the European Union.

While some Chinese tourists will buy from British luxury brands that have a small or nonexistent retail presence outside of their home country, department stores such as Harrods and Selfridges, outlet malls like Bicester Village, and multi-brand retailers like Watches of Switzerland will almost certainly see a painful drop in sales to Chinese tourists once tourism to Britain gets back on its feet. And why wouldn’t this be the case?

Witha growing number of luxury watch brands joining Tmall’s Luxury Pavilion, it is feasible that these brands could team up with tourism authorities to collaboratively promote pilgrimages to famed watchmaking regions such as Switzerland’s Jura Arc or Glashütte across various platforms including Taobao Live, or even consider content-commerce avenues such as custom reality shows or discreetly sponsored films and television programs. The sky is the limit — and, ultimately, it is Europe that holds the cards rather than post-Brexit Britain.