Burberry's London stores lose out as tourists head to tax-free Paris, Milan

Two women stand in front of a store of British luxury brand Burberry at the Bahnhofstrasse shopping street in Zurich January 15, 2013.REUTERS/Arnd Wiegmann

LONDON, Nov 17 (Reuters) - London is losing out to Paris and Milan as a tourist destination for high-spending shoppers over the lack of a tax incentive, British luxury brand Burberry (BRBY.L) said, after its UK-based sales suffered.

Overseas visitors to London have not been able to claim back value-added tax on shopping since the end of 2020 following Brexit, putting the city's upmarket stores at a disadvantage to rival European cities.

In the political turmoil that has gripped Britain this year, Prime Minster Liz Truss's short-lived government said it would introduce a new VAT-free shopping scheme for international visitors, to boost retail, entertainment and hospitality sectors.

Weeks later, the new government under Prime Minister Rishi Sunak scrapped the idea in a bid to save money.

Burberry finance director Julie Brown said London was now missing out, with shoppers from the United States, Middle East and Asia flocking to shopping districts of Paris and Milan, and not Bond Street and Knightsbridge in the British capital.

"We're not seeing the same degree of tourism in the UK as we used to because we're seeing more tourists are going into Paris, Milan," Brown told reporters on Thursday.

"It was a real incentive for the luxury shopper, it was a real incentive to come to the UK," she said of the tax.

Tourists in European cities can reclaim sales tax on some higher value purchases at certain retailers.

Burberry's results on Thursday showed that continental Europe, particularly France and Spain, outperformed the rest of the Europe, Middle East, India and Africa region on a sales growth-basis, while British sales were in line with the average.

France's LVMH (LVMH.PA), which owns Louis Vuitton and Dior, and Kering (PRTP.PA), have both outshone Burberry's sales growth of late.

"If there was an alternative tax-free shopping scheme available in the UK, I think it would definitely bring tourists back to the UK," said Brown.

Britain's finance minister Jeremy Hunt will outline the country's new budget later on Thursday, but there is not expected to be any reintroduction of tax-free shopping for tourists amongst an expected raft of tax hikes and spending cuts.

Reporting by Paul Sandle, writing by Sarah Young; editing by Kate Holton and Jane Merriman

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