Burberry warns of impact of axing VAT-free shopping on UK sales | Business News

Burberry has warned of a significant hit to UK sales after a scheme allowing VAT-free shopping for overseas tourists was scrapped following the end of the Brexit transition period.

The luxury fashion group, which is already counting the cost of the coronavirus pandemic on demand, said the change was likely to be felt after current travel restrictions are eased.

Burberry also said complying with new post-Brexit trade rules would add “modest” costs.

In addition, it has identified “incremental” duty to be paid under so-called “rules of origin” – regulations limiting tariff-free trade to goods mainly made in the exporting country.

The company was not the only one pointing to a Brexit impact on business on Wednesday, with model railway maker Hornby saying its sales this month had been disrupted due to backlogs experienced by courier companies shipping deliveries to Europe.

Meanwhile, the chief executive of electronics and mobile phone retailer Dixons Carphone said there had been “teething issues” connected to the import of goods which are then re-exported to Ireland.

Burberry highlighted the impact of post-Brexit changes in its trading statement covering the Christmas quarter, which showed comparable store sales fell 9% in the 13 weeks to 26 December.

The update revealed that sales were up in Asia Pacific, including China, but they fell by 37% in the Europe, Middle East, India and Africa region where many stores remain closed.

Burberry said the latter was affected by “much lower tourist demand”.

But it struck a positive tone on its outlook, as it engaged with younger shoppers through a social media-focused campaign with England footballer Marcus Rashford.

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The company said it welcomed the Brexit deal but was still “working through the full implications”.

It highlighted the VAT retail export scheme which previously allowed VAT refunds for non-EU tourists but has now been stopped.

“This development, which will reduce the attractiveness of the UK as a destination for luxury shopping, will have limited impact on revenue in the current year given the low levels of tourist traffic, but is expected to have a more significant impact when travel flows resume,” it said.

Sales were “likely to shift between countries”, Burberry said, adding: “We are looking at ways to mitigate any impact this has as tourists return to mainland Europe.”

Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said: “The scrapping of the non-EU VAT scheme will disrupt Burberry’s established revenue patterns.

“The scheme made the UK a popular destination for retail tourists from the Middle East and Asia alike, and these shoppers made up a significant chunk of revenues.

“Burberry will be busy trying to cook up ways to stem any potential sales outflow for when travel normalises.”