Mulberry makes plea for return of tax-free shopping as wealthy shun London

Luxury handbag maker has suffered a 10 per cent plunge in retail sales

Mulberry says its flagship store on Bond Street is struggling after the UK government ended VAT-free shopping. Photo: Sopa
Powered by automated translation

The boss of luxury handbag maker Mulberry has urged the UK government to reinstate tax-free shopping for tourists as he warned wealthy tourists are shunning London for Paris and Milan.

Thierry Andretta, chief executive of Mulberry, said the government's decision to end tax-free shopping in January last year has hit its high-end stores in the capital, particularly its Bond Street outlet.

It is compounding a slowdown in luxury spending as the cost-of-living crisis begins to take its toll across all sectors, with the group revealing its UK first-half retail sales plunged 10 per cent.

Shares in Mulberry tumbled as much as 28 per cent after opening on Wednesday before paring back to stand around 11 per cent lower as it revealed its half-year loss.

Mr Andretta said its Bond Street store — which has sky high rents and business rates — used to see up to 50 per cent of sales from international tax-free shoppers, but this has been decimated to less than 5 per cent.

“Some wealthy people now prefer to go shopping in Paris or Milan or other capitals — it’s really hitting us.

“The wealthy are still buying but they’re not choosing to buy in London,” he said, adding that was also hurting hospitality and theatres in London as some tourists take their spending elsewhere.

“[VAT-free shopping] is something we would like the government to reinstate,” he said.

VAT-free shopping for tourists was axed from January 2021, only for former chancellor Kwasi Kwarteng to reintroduce it in the disastrous mini-budget, before new Chancellor Jeremy Hunt reversed the planned reinstatement.

Mulberry revealed it swung to a pre-tax loss of £3.8 million ($4.5 million) for the six months to October 1, from a profit of £10.2 million a year earlier.

Mulberry saw UK retail sales drop 10 per cent to £34.1 million, with trading in the second quarter particularly affected as economic uncertainty and the cost-of-living crisis knocked shoppers' confidence, with the lack of VAT-free shopping also taking its toll.

Its profit drop came despite the group raising prices twice, in March and September, to offset soaring costs and energy bills, and its prices rose by about 7 per cent globally.

Mr Andretta said there may be a further small price rise to come for winter 2023, but this has yet to be confirmed.

Results a year earlier were boosted by business rates relief support as well as profits from the sale of a shop lease in Paris, but even with these stripped out, Mulberry sank to an underlying £2.8 million half-year loss from a profit of £4.5 million.

It said online UK sales also fell, by 24 per cent, as some customers switched back to shops.

Mulberry said trading improved in the eight weeks to November 26, though it warned over continuing cost and economic pressures.

It said price rises were made to “ensure we make no compromises on the quality of our product” and to protect profitability in the face of rocketing inflation.

Updated: May 12, 2023, 3:01 PM