Spending by well-heeled overseas visitors is providing London's top department stores and luxury retailers with festive cheer as the year draws to a close without a noticeable impact from the stalled domestic economy.
The relative weakness of the pound means that luxury shopping has stayed fairly buoyant, even as the cost-of-living crisis has dampened domestic consumer spending and sentiment.
In this year's London Luxury Survey, conducted by the luxury sector body Walpole and the property developer Cadogan, 82 per cent of respondents said the capital had an advantage in attracting luxury goods buyers, because the blend of brands and great British names gave a distinctiveness to London's luxury market.
That distinctiveness is fuelling expansion plans in 2024 for many of the brand retailers and big department stores. For one of the grand dames of the shopping scene a reshuffle of its ownership has so far been barely a blip on its on its soaraway success with consumers.
Fortnum & Mason, said to be the late Queen Elizabeth II's favourite shop, plans to return to the UAE, with a new outlet at Dubai International airport. The shop on Piccadilly in London opened an outlet in Dubai in 2014, but closed it three years later.
Fortnum & Mason can trace its roots back to the early 18th century when Henry Mason ran a small shop in the St James's area of London and rented a room in his house to William Fortnum, a footman in Queen Anne’s household.
Like many of the big London high-end department stores, Fortnums does 50 per cent of its festive season sales online.
The pandemic hit Fortnums and other luxury retailers in London's West End hard, but it bounced back to profit in 2022. However, since its last set of published numbers in July 2022, the luxury sector has had to contend with rising inflation and interest rates, a tight labour market and a general malaise in the UK economy.
All change at Selfridges
The sight of the usual festive window dressings at Selfridges might convince shoppers that nothing has changed at the luxury department store on London's Oxford Street, but it has been quite a year for the company.
Last month, the Thai conglomerate Central Group took control of the company that owns Selfridges after converting a loan to its Austrian partner, Signa, to equity.
chief executive, New West End Company
Signa, which was also invested in New York's Chrysler building, subsequently filed for insolvency.
The pair bought Selfridges for about £4 billion ($5 billion) two years ago. The loan-to-shares deal meant Central Group, which is owned by the Chirathivat family, took control of the other department stores in the Selfridges group, including Brown Thomas & Arnotts in Ireland and De Bijenkorf in Holland.
As Central took full control of the Selfridges Group, a number of changes took place, including a new group chief executive and a new head at the flagship London store.
The new executives have yet to divulge what plans they have for the Selfridges stores in London and Manchester, but it has been known for some time that diversification was a priority, as evidenced by the opening of a luxury cinema and the plans for an upmarket hotel.
Meanwhile, rumours persist that Saudi Arabia’s Public Investment Fund (PIF) is interested in acquiring Selfridges.
It is something that Selfridges has long denied, but the PIF was a minority backer of the Signa investment vehicle that was involved in the original takeover with Central Group back in 2022.
Gulf sovereign wealth funds are no strangers to London's luxury department store sector, given that Harrods is owned by the Qatar Investment Authority.
'Strong pipeline'
Elsewhere, luxury brands are about to make some London moves in the next year.
While in 2023 there were several openings, from the unveiling of Gucci’s “salon-concept” store, to the refurbishment of Burberry’s global flagship, next year promises more of the same, with new openings expected from Rolex, Moncler and Georg Jensen. Meanwhile, Saint Laurent has already secured a lease for its six-storey space on the corner of Bond and Grafton Streets.
"That there is still such a strong pipeline of world-class brands set to open their doors in 2024 and beyond underlines the enduring appeal of the West End, and the value of giving consumers an elevated shopping experience," Dee Corsi, chief executive of the New West End Company, told The National.
'Innate advantage'
"Benefiting from a combination of international tourist spending and domestic spending and clearly attracting wealthy individuals, the big-name department stores selling luxury goods tend to be far more insulated from domestic spending pressures than mid-market multiple chains at Christmas," Diane Wehrle, founder and chief executive of Rendle Intelligence and Insights, told The National.
"They’re not immune to global economic challenges which we have seen starting to impact high-end retailers in 2023, but their attraction to overseas visitors combined with a weak pound provides an innate advantage."
There is also a "quiet optimism" about the future among London's luxury retailers, according to Ms Corsi.
"Our festive forecast indicated that the West End would see a marginal year-on-year increase in consumer spending this year, largely driven by international shoppers as Brits remain cautious," she told The National.
"This is welcome news for all retailers in the West End, but especially those in luxury whose customer base typically skews towards the international."
Nonetheless, not all of London's luxury retailers have been able to keep up the impressive growth rates they achieved just five years ago.
Thanks to the covid pandemic, followed by two years of inflation woes and rising interest rates, the global luxury goods market has had some of the wind taken out of its sails.
Analysts say the post-pandemic spending spree that consumers embarked on after lockdowns now appears to be over, even though luxury spending still illustrates remarkable resilience.
Steven Medway, chief executive at the Knightsbridge Partnership, says luxury shopping destinations in central London are holding up well with average footfall up 27 per cent so far this year.
"Businesses across Knightsbridge have noted the beginning of a slowdown in demand post the pent-up demand that built during the pandemic, however, this is a trend that is being experienced globally and has been reflected in recent announcements by major international fashion brands," he told The National.
"It’s clear that no one can expect the post-pandemic boom to continue indefinitely. However, this slowdown may mean that in 2024 the return to pre-pandemic levels of growth in high-end retail districts begins to tail off.
"This isn’t something we are seeing yet though, as we move into the busy Christmas period."
That tailing-off of growth is expected to be felt more keenly by some than others. For example, last month, the luxury fashion company Burberry cautioned that it will struggle to meet revenue forecasts, citing the gloomy macro-economic picture around the globe.
Hey, Big Spender
British Prime Minister Rishi Sunak removed the VAT tax break, which became known as the tourist tax, when he was Chancellor of the Exchequer and the UK left the EU.
The issue of tax-free shopping is being given renewed urgency, because in just over six months an estimated three million foreign visitors will arrive in Paris for the Olympic Games, according to research by Euromonitor International.
London's luxury department stores and brand retailers will be looking to attract as many of those international travellers as possible across the English Channel, but will find that more difficult if their goods remain effectively 20 per cent more expensive than in the EU. According to the London Luxury Survey, high-end tourists spend 14 times more in the UK than the average tourist, while in Europe those same wealthy tourists spend only eight times as much.
The survey also shows that the city's brands and luxury retailers are largely positive about their business prospects now and in the near future, with 71 per cent feeling positive now, and 81 per cent feeling positive about the next few years.
When the same businesses were asked to select three adjectives that best summed up London’s appeal as a luxury global destination from a list of 15, the terms vibrant, timeless and dynamic came out on top.
Tax-free shopping
While their experiences of economic headwinds, higher interest rates, sometimes shaky supply chains and fluctuating footfall numbers may differ, what all the luxury retailers and brands in London's West End and beyond agree on is the reinstatement of tax-free shopping.
On January 1, 2024, it will be three years since tourists from outside the EU have been able to claim back the value-added tax charged on their retail purchases.
London's luxury retailers have lobbied in the intervening period to get the VAT Retail Export Scheme re-instated claiming that without it the British capital's upmarket shops are at a disadvantage compared with their counterparts in Europe, where tax-free shopping continues. When charged VAT, visitors to London could be paying 20 per cent more for the same product they could buy in Paris or Milan.
More than 400 senior executives have joined the campaign to abolish the tourist tax, which it is argued has a broader knock-on effect on UK tourism in general.
Executives at Harrods, Harvey Nichols, Burberry and others have spoken out against the government's continuing insistence not to re-instate tax-free shopping.
Walpole argues that bringing back tax-free shopping would add £4.1 billion to the UK economy and create 78,000 jobs.
"The iconic Burberry Heritage trench coat, for instance, might be sold to an international visitor on Sloane Street, but it is handmade in the Castleford Mill, outside Leeds," Walpole's London Luxury Survey said.
"The economic impact of the sale stretches back not just to Castleford, but to the small businesses which in turn supply that mill."
While Chancellor Jeremy Hunt did not directly address the issue in his recent Autumn Statement to the British parliament, he did respond to a question from a fellow Conservative MP saying that the government was "looking again at the numbers in the light of the most recent data".
As such, London's luxury retailers are hopeful that tax-free shopping will be re-introduced in 2024.
'Positive step'
Ms Wehrle told The National that the Chancellor's commitment to review evidence was a "positive step".
"The aim now is to get the review completed so that the Chancellor can announce any change in the Spring Budget," she added.
Others are sceptical of a government that originally described tax-free shopping as a "costly system to maintain with unclear economic benefits".
"It remains to be seen whether the government will listen to the weight of evidence the industry is supplying and reintroduces tax-free shopping, which would undoubtedly reaffirm and strengthen London’s position as a preferred shopping destination for many foreign visitors," Mr Medway told The National.
