Duty bound

The UK Government’s recent U-turn on the re-introduction of VAT free shopping is an unwelcome blow for the travel retail sector given the current economic climate.

However, it raises the question of what potential economic impact is the UK travel retail sector missing out on, and how can the sector use alternative methods to build back business after the impact of both Brexit and Covid-19?

As part of Brexit negotiations, the end of the transition period culminated in the return of duty-free sales of liquor and tobacco but also the removal of VAT free sales on a range of other categories for the UK. The UK Government's stance on VAT free travel retail ran contrary to many other global travel retail markets and caused a blow for a sector that badly needed a boost.

The September announcement of the re-introduction of VAT free shopping was thus welcomed by travel retailers due to the positive economic benefit and growth it would bring (VAT free shopping for non-EU visitors resulted in a spending increase of £871 million for the UK retail sector in 2017). Nigel Keal of the UK Travel Retail Forum said that its return would, “Put UK travel retailers on a level footing with their competitors around the world”.

The introduction of VAT free shopping could have potentially resulted in a significant boost for the sector in what is likely the beginning of an economic downturn for an industry that had already been brought to its knees. The UK would have been the only country within Europe that 447 million EU citizens could avail of VAT free shopping which is a significant missed opportunity.

The impact of this for the British travel retail sector begs the question of what could be done to ensure the sector doesn't lose some much-required growth. Many travel retailers are now turning to alternative methods to increase sales and drive revenue. One of these methods is arrivals duty free.

Arrivals duty free has been a significant priority for travel retailers in recent years due to its opportunity to increase commercial revenue, with the campaign being spearheaded by the European Travel Retail Confederation and the UK Travel Retail Forum (UKTRF). The introduction of arrivals duty free has the potential to generate 20-30% of a region's total travel retail sales.

The UKTRF's objective is to capitalise on the additional revenue generation of arrivals duty free. The group recently submitted an economic research paper on the subject to HM Treasury and are currently awaiting detailed feedback and additional discussion.

Travel retail has faced significant challenges in recent years. The re-introduction of VAT free shopping would have enabled its stakeholders to receive a welcome boost within the UK market. Now that the re-introduction is revoked, travel retailers must look towards additional revenue generators like arrivals duty free to continue to re-build in the current economic climate.

Katie Hastings