Call of duty
How will the imminent changes in duty free affect both airports and retailers?
The UK government recently announced that the rules on duty free will be changing at the start of the New Year, when the UK leaves the EU. This means travellers leaving for, and entering from the EU, will no longer be subject to the single market regulations.
There are four main elements to these changes:
All international passengers, regardless of destination, will now be able to purchase tobacco and alcohol products without paying any duty
Tax-free sales on goods such as electronics and clothing at the airport are being abolished
VAT refunds for overseas visitors will be removed, unless the goods are being posted to their home address
Duty free allowances for arriving passengers will be increased, although this will mean a decrease for passengers arriving from the EU
The government is naturally focusing on emphasising the duty free aspects of the change, highlighting relatively minor savings on alcohol, and stating that the allowances are some of the most generous in the world. However, this is likely to have a detrimental effect on many UK retailers, and not just those in airports.
Businesses in popular tourist hotspots, such as York, Edinburgh's Royal Mile, London's West End, as well as popular shopping and outlet centres all currently benefit from tourists taking advantage of VAT savings.
The New West End Company (a partnership that represents 600 retailers, restaurants, and hoteliers in London) has calculated that instead of gaining £2.1bn in sales from the UK's departure from the EU, this change will instead result in a loss of £3.5bn in tax-free sales. Bicester Village in Oxfordshire is an embodiment of the potential impact. Every year it attracts more than 7 million visitors and is the second most popular UK destination for Chinese tourists according to Alipay, many of them wealthy travellers looking to find luxury goods at bargain prices.
Visitors can get around paying VAT on products if they get them delivered to their home address, but few would want to pay thousands of pounds for goods that they then can't take with them when postage costs and import duties in their home market may wipe out any potential savings they might have made.
Airports, already reeling from the blow dealt by the coronavirus pandemic, may be even more badly affected. With duty removed on tobacco – a category already in decline – and the savings on alcohol being relatively minor, the decision to allow duty free sales is negated by the removal of tax free sales on other goods (although the government still has to clarify if this will apply to all goods). Travellers to Europe may also decide to purchase goods from the airport in Europe as the EU will regard the UK as a third country and therefore returning residents will benefit from VAT savings that are no longer available in the UK.
Although the New West End Company and others are considering legal advice, retailers should start to prepare for the changes. Ensuring that worldwide deliveries are possible for all goods sold is an important starting point even if not everyone will want items posted. But retailers should also consider increasing UK product lines that are not readily available elsewhere if they are unable to compete on price. This may be a catalyst to a sale that may otherwise have been lost to a European destination.
Airports will need to curate a compelling offer that at least matches prices on the high street and online, with convenience becoming the key selling point. Duty free items, already prominent in airports, will need a marketing push to EU travellers who may not be aware of the potential savings in a post-Brexit environment. Currently duty free for arrivals is not possible in the UK, but trade bodies are lobbying the government for a change in the law, which would go some way to mitigating the lost revenue expected from this change.
Chris van Rÿswÿck