Challenges mount for UK luxury retail: Chinese student drop and ‘Tourist Tax’ dent confidence

    Luxury retailers in the UK face a tough challenge: how to generate growth as competitiveness declines.
    As of January 2021, the UK stopped operating tax-free shopping which has naturally impacted the appeal for Chinese tourists. Photo: Shutterstock
    Marcus JayeAuthor
      Published   in Travel

    Declining international student applications from mainland China, the result of tougher visa requirements and climbing surcharge fees, and the removal of tax-free shopping for tourists in January 2021, are piling pressure on luxury brands and retailers operating in the UK.

    The number of Chinese students accepting firm offers from UK universities dipped 17.5 percent year-on-year this academic year, according to Universities and Colleges Admissions Service (UCAS) Chief Executive, Clare Marchant. This is the first such decrease in a decade.

    “Ultimately, with fewer students coming from the mainland, the UK will also lose out on the very valuable VFR (visiting friends and relatives) revenue … These visitors are prime consumers of travel, tourism and hospitality and disperse widely across the UK's many towns and cities,” says Emma English, Executive Director, the British Educational Travel Association (BETA).

    Meanwhile, the tax-free shopping reversal is costing the country £10.7 billion (13.6 billion) in lost GDP and deterring two million tourists a year, according to a report by the Centre for Economics and Business Research released as part of a lobbying campaign to reinstate the policy.

    Shopping is the number one activity for Chinese vacationers in the UK.

    Chinese luxury consumers are one of the key driver's of UK retail success. Photo: Shutterstock
    Chinese luxury consumers are one of the key driver's of UK retail success. Photo: Shutterstock

    “UK retailers face a disadvantage as the only major European market without a tax-free shopping scheme, resulting in missed opportunities for international spending from high-spending Chinese tourists,” Luca Cassina, President of Retail at Planet, a London-headquartered software and payment technology vendor, tells Jing Daily,

    Calls to reintroduce tax-free shopping for tourists visiting Great Britain (England, Scotland and Wales) are growing louder by the day as the country’s legislators prepare to debate the policy in Parliament on September 7.

    Luxury brands and retailers argue the imposition of 20 percent VAT on tourists’ purchases makes the UK a less attractive destination for high-spending visitors, particularly from China.

    “Chinese tourists will do their shopping for luxury labels when they are in Paris, Madrid, Rome. Not in London anymore,” says Helena Beard, Managing Director of Guanxi, a UK-based marketing and training consultancy specializing in Chinese tourism.

    Chinese spending in European tax-free stores increased 12 percent month on month in April this year, according to data from Planet.

    France remains the most popular tax-free market for Chinese shoppers, capturing 54.9 percent of their sales across the continent, followed by Italy at 11.5 percent and Germany at 11.4 percent.

    Shifting student demographics#

    China sent the most international students, 151,690, or 22.3 percent of the entire international student intake, to the UK in 2021/22, according to statistics released by UK Higher Education.

    The British cities with the highest numbers of Chinese students are London, Manchester, Edinburgh and Warwick.

    But according to recent data released by UCAS, June saw applications to universities by Chinese students fall 2.2 percent year on year.

    “Chinese students are choosing other countries with friendlier visa policies,” says BETA’s English.

    The UK government last month announced a significant hike in visa application fees and the immigration health surcharge as part of a new public sector pay deal. The surcharge is rising to £776 (987) from £470 (598) a year for international students, while work and visit visa costs are increasing by 15 percent to 20 percent.

    Yet, the news is not all bad for retailers.

    Though applications from China-born students dipped, the total number of international student applications increased, with India, Nigeria, and the US seeing more prospective students apply, according to Global Student Living.

    Besides, the small decline of Chinese students follows record intakes over the pandemic, when international students could obtain a one-year Master’s Degree from a UK university online, without the cost of coming to live in the UK.

    Will the UK government backtrack?#

    While there is little hard data that the imposition of VAT is putting off Chinese visitors, anecdotal evidence suggests they are saving their luxury spending for the European legs of their trips.

    The picture will become clearer when the UK government releases its figures on the current tax regime and the number of people having goods delivered straight to an address outside the UK, purchases that can still be made tax-free.

    Though the UK’s powerful business lobby has mounted a prominent campaign to reverse the tax decision, the country’s finances are in a perilous state, hamstringing the government’s room for maneuver.

    The issue is all the more important as consumers in the UK are cutting back on luxury goods purchases thanks to stubbornly high inflation.

    All eyes are on the upcoming debate.

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