Burberry attacks move to scrap tax-free shopping on eve of Brexit

Burberry has warned that the government’s plan to scrap tax-free shopping will rob the British luxury brand of its “home market advantage” on the eve of Brexit, as wealthy international tourists opt to holiday in mainland Europe instead.

Julie Brown, the chief operating officer of Burberry, said foreign tourists, who are traditionally behind 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,” she said.

The Treasury’s decision to end tax-free shopping on 31 December has caused a storm in retail and tourism circles. The Treasury wants to use the end of the Brexit transition period to bring personal duty and tax systems in line with international norms.

Millions of wealthy tourists from China and the Middle East come to Britain each year, spending nearly £18bn on shopping trips, hotel stays and days out. The current retail scheme hands these non-EU visitors a major perk as they can reclaim the 20% VAT paid on purchases such as clothes, handbags and jewellery.

The scheme effectively makes goods a fifth cheaper, a discount that is particularly significant to luxury brands and high-end department store such as Selfridges and Harrods who sell high-priced designer clothing and accessories. Burberry’s popular Lola bag, for example, starts at £790 with eligible travellers able to recoup nearly £160.

A recent report by the Centre for Economics Research suggested that withdrawing the scheme would result in a 7% drop in the number of non-EU visitors, the equivalent of 1.2 million people, and up to 41,000 job losses. Heathrow airport is seeking to overturn the decision through a judicial review.

Brown’s comments came as Burberry updated investors on a difficult six months when disruption caused by the pandemic sent sales down 31% to £878m. Pre-tax profits fell 62% to £73m for the six months to 26 September. The coronavirus pandemic, coupled with the tax-free shopping issue and Brexit, meant the business faced “three layers of challenge on top of each other”, she said.

Over the last three years the British brand has been revamped by its Italian chief executive Marco Gobbetti who wants Burberry to become a super-luxe brand, in the same league as Gucci and Dior, which both have higher prices and profit margins.

In 2018, the British label previously best known for its trenchcoats and signature check replaced its longstanding creative supremo, Christopher Bailey, with Riccardo Tisci.

The collections created by the former Givenchy designer, which have included bomber jackets and bumbags emblazoned with a new logo comprised of interlocking Ts and Bs (the initials of the company’s founder Thomas Burberry) have been well received and are credited with attracting younger shoppers.

Brown said there was a growing buzz around the brand in many countries and, despite the turmoil created by the health crisis, it would be doing less discounting in the coming months to “strengthen the brand even further”.

The overall picture pointed to recovery with sales down just 6% in the second quarter compared with a 45% slump in the first. Sales returned to growth in October but a second wave of lockdowns means currently one in 10 of its stores are now closed.

By early afternoon Burberry shares had given up early gains and were down 2% at £15.91.

Richard Hunter, head of markets at Interactive Investor, said Burberry was “running hard to stand still”. The sales growth recorded in October was good news, he said, but “did not incorporate the effects of the second wave lockdowns. The impact may not prove as severe as the full lockdowns did earlier in the year but will nonetheless somewhat derail Burberry’s recovery.”

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