The luxury gap

In 2020, the UK decided to eliminate tax-free shopping for tourists, as a result the UK is at risk of becoming one of the least attractive luxury shopping destinations in Europe.

The impact of Covid-19 during 2021 and 2022 makes it difficult to accurately quantify the impact this had on the UK economy and luxury retailers in London, however, according to Burberry sales data, the UK had delivered by far the weakest recovery from the pandemic amongst major fashion markets. Data from tax refund company Global Blue also showed that while spending by American visitors to Britain has returned to pre-Covid levels, spending in France and Italy have soared to twice the levels shown in the UK. This pattern is even more pronounced among visitors from the Middle East, who now prefer to shop in France and Italy over the UK at even higher rates than their American counterparts.

So, what does this mean for the future of luxury fashion brands in the UK, and how do they target a new demographic of consumers to encourage spend?

Luxury's opportunity in hospitality
RealReal's 2021 Luxury Resale report outlined that Gen Zs and Millennials are the demographic with the largest buyers and consumer growth at 33% and 86% YoY, respectively. As a result, luxury brands are increasingly seeking engagement from these consumer groups, demographics which they have historically ignored. This has led to the rise of luxury brands blurring the lines between the hospitality and luxury sector in order to reinvent themselves and become more appealing to a wider consumer group.

To achieve this, luxury brands need to become more involved in the lives and lifestyle of their clientele through the expansion of their offer beyond traditional remits, into the hospitality sector.  Recently, we have seen an increasing number of luxury brands in the UK implementing this trend. This is witnessed through the opening of the new Prada Caffé (as seen pictured above) in Harrods, for a "taste of Milan in London" as well as Tiffany & Co opening The Blue Box Café on the ground floor of Harrods. Mayfair, Soho, and Chelsea have also been popular destinations for luxury brands to open hospitality sites with Ralph Lauren launching Ralph's Coffee & Bar, Prada's cake shop Marchesi, the Aime Leon Dore Cafe in the heart of Soho, and the Anya Hindmarch Cafe in Chelsea.

Luxury brands are recognising the increasing demand from younger generations to live and experience their beloved brands and heritage, so in order to attract these future clients, luxury brand must create a truly immersive shopping experience that is at the forefront of the retail trends.  An increasingly popular consumer trend is the rise in health and wellbeing and low alcohol products, which can be seen through the introduction of the H Beauty Hall Champagne Bar in Harrods offering 100% alcohol free products such as Wild Idol.

Luxury's opportunity in home
According to market research firm Euromonitor, sales in the home and hospitality categories are predicted to grow at a CAGR of c.7% between 2023-2026, exceeding pre-COVID growth of 4%. Driving this are shifts in hybrid working and growing consumer interest in entertaining at home. Furthermore, luxury fashion brands are expanding into lifestyle to extend their brand reach and find new avenues of growth. We have seen this through the introduction of Dyptique cleaning products, Versace kettlebells, and Prada cutlery.

According to Business of Fashion Insights' latest report, approximately 70% of consumers surveyed said experiencing a branded hospitality experience would encourage them to purchase an item, which helps luxury retailers activate their brand presence. This has been apparent with the increase in luxury branded hotels such as the Bulgari in London and Diane von Furstenberg collaborating with Claridge’s Hotel to design rooms and suites and build its very own luxury branded signature spas.

Despite the doom and gloom of the after effects of the removal of VAT shopping in the UK, the future for luxury shopping looks promising and the growth into new markets for brands is ever changing.

Jemima Scott