top of page

Brexit and Burberry: Impact of VAT Changes on the UK Retail Sector


The Economic Landscape and Brexit

The economic landscape in which Burberry operates has been significantly influenced by Brexit. The UK's departure from the European Union has resulted in several changes, including the abolition of the VAT retail export scheme. This scheme allowed non-EU tourists to reclaim the VAT paid on goods purchased but not consumed in the UK. The decision to scrap this scheme has been met with criticism from several quarters, including Burberry, which believes it puts the UK at a competitive disadvantage.


Brexit's Impact on the UK Retail Industry

Brexit has had a profound impact on the UK retail industry. Supply chain disruptions due to new customs regulations and border checks have resulted in delays and increased costs for retailers importing goods from the EU. These disruptions have been particularly severe for fresh food and other perishable goods. The new trade barriers have also led to increased costs for retailers. These costs are often passed on to consumers, leading to higher prices.


The Impact on Burberry

For Burberry, these changes have had a noticeable impact. Despite a 10% rise in sales to £3.1bn in the year to 1 April 2023, with underlying sales growth rising to 16% in the final quarter of the year from 7% across the year as a whole, the company has expressed concern about the VAT changes. The company's CEO, Jonathan Akeroyd, has stated that the UK is at a "competitive disadvantage for global shoppers" and that this has held back sales in its home market.


In the three months to April 2023, sales to tourists in London rose by 19%, but they tripled in Paris and were up 43% in Milan. Despite total sales in the UK rising by 28% for the year, driven by locals and visitors from Europe, the US, Asia, and the Middle East, Akeroyd noted a significant surge in UK tourists spending in Europe, which he described as "quite telling".


The Broader Implications

Akeroyd's comments echo sentiments expressed by other companies, including British Airways, Mulberry, and Fortnum & Mason, which have also criticized the decision and called on the chancellor, Jeremy Hunt, to reverse it. The chair of Burberry, Gerry Murphy, described Brexit as a "drag on growth" and said it had left Britain nursing the "weakest" Covid recovery among its big markets. He told the prime minister, Rishi Sunak, that the decision to remove VAT refunds in 2020 had hurt the economy and was a "spectacular own goal".


Burberry's Performance Amidst Challenges

Despite these challenges, Burberry has shown resilience. The company reported a 10% rise in sales to £3.1bn in the year to 1 April 2023, with underlying sales growth rising to 16% in the final quarter of the year from 7% across the year as a whole. This was largely due to a resurgence in China after pandemic restrictions were eased in January. Annual pre-tax profits rose 24% to £634m.


The Future of Burberry and the UK Retail Industry

Looking ahead, the future of Burberry and the UK retail industry as a whole remains uncertain. The company's shares are down 5.3% from a week ago, and the broader retail industry continues to grapple with the challenges posed by Brexit. However, Burberry's ability to achieve growth despite these challenges suggests that it is well-positioned to navigate this uncertain landscape.



Conclusion

In conclusion, the case of Burberry highlights the potential challenges that Brexit and associated policy changes can pose for UK businesses, particularly those in the retail sector. While the company has managed to achieve growth despite these challenges, the concerns raised by its CEO underscore the need for careful consideration of policy decisions and their potential impact on the UK's competitive position in the global market.


The abolition of the VAT retail export scheme has been a significant point of contention, with Burberry and other companies arguing that it puts the UK at a competitive disadvantage. The impact of this policy change on Burberry's sales, particularly in comparison to sales in other European cities, illustrates the potential implications of such decisions.


However, despite these challenges, Burberry has demonstrated resilience. The company's ability to achieve growth in a difficult economic landscape is a testament to its strategic planning and adaptability. Looking ahead, the future of Burberry and the UK retail industry as a whole remains uncertain, but Burberry's performance suggests that it is well-positioned to navigate this uncertainty.


Ultimately, the case of Burberry underscores the complex interplay between political decisions and economic outcomes. It serves as a reminder of the importance of strategic planning and adaptability in navigating an ever-changing economic landscape.

Commentaires


Stay connected with our captivating content, expert insights, and exclusive updates!

Thanks for subscribing!

bottom of page