Abolish 'VAT Refund'... London's Status as 'Shopping No.1 Spot' Also Shaken

Reduced Visitors from US and Middle East... Paris and Milan Rejoice
Brands Highly Dependent on UK Sales Particularly Hit

An analysis has emerged suggesting that London's reputation as a 'luxury shopping hotspot' alongside Paris and Milan is being shaken. This is due to the UK government's decision to stop VAT refunds for foreign tourists.

According to the Wall Street Journal (WSJ) on the 11th (local time), since last summer, the number of tourists visiting London for shopping has decreased. In contrast, tourists have relatively flocked to Paris, France, and Milan, Italy, which are also considered representative shopping cities alongside London.

This phenomenon appears to be influenced by the UK government's abolition of VAT refunds for foreign tourists.

The UK abolished the tax-free shopping regulations for foreign tourists at the end of 2020, citing that it could no longer bear the public cost amounting to 2 billion pounds (approximately 3 trillion won) annually.

WSJ reported, "London has become the only major European tourist city where tourists cannot get back the value-added tax (VAT), which accounts for 20%."

The scene of New Bond Street in London, UK, lined with luxury brand stores. [Image source=Reuters Yonhap News]

Recently, as the world has entered the endemic phase, Europe's tourism industry has become active again. According to 'Global Blue,' a tax refund analysis company, the VAT refund amount for American tourists visiting Europe in January this year surged by 297% compared to January 2019. During the same period, the refund amount for Middle Eastern tourists also rose by 224%.

Moreover, this summer, with border openings, a large number of Chinese tourists, major players in the luxury market, are expected to visit Europe. Meanwhile, British people are reportedly crossing over to nearby European Union (EU) countries and spending large amounts on duty-free goods.

As a result, brands and luxury department stores that heavily rely on sales within the UK are reportedly suffering significant damage. Global brands such as Louis Vuitton and Gucci have large stores in other European countries as well, so they are not greatly concerned about the decline in London sales.

On the other hand, the British brand Mulberry reportedly had half of its sales coming from its New Bond Street luxury shopping district store in London before the tax regulations changed, but this proportion has now fallen to below 5%.

Accordingly, luxury retailers in London are reportedly lobbying the UK government to reinstate the tax-free regulations. WSJ forecasted, "If this trend continues, London's real estate market could also be affected."

Meanwhile, according to global real estate consulting firm Cushman & Wakefield (C&W), last year London’s New Bond Street lost its position as the third most expensive shopping street in the world to Via Montenapoleone in Milan, Italy.

This content was produced with the assistance of AI translation services.