Retail customers at London Heathrow Airport (LHR) have reacted with caution when faced with new pricing following the abolition of airside tax free sales (aside liquor & tobacco) earlier this year, TRBusiness has learned.

HM Treasury and HM Revenue and Customs withdrew the extra-statutory concession (ESC) for airside sales and the VAT Retail Export Scheme in January despite valiant and concerted efforts within the industry (including TRBusiness) to reverse a decision made after a consultation.

Heathrow says it does not as yet possess ‘clean data’ on the material impact to spending as a result of the cessation of VAT relief on non-liquor and tobacco categories, with the combination of Covid-19 and the decision itself ‘muddying the waters’.

SHOPPERS INFORMED OF CHANGES

Speaking to TRBusiness in a recent video interview, available in the forthcoming July/August e-zine, Heathrow Director of Retail and Property Fraser Brown, said: “All the anecdotal evidence and the limited data we have points in a negative direction in terms of the impact of this.

“All of our luxury retailers are telling us that consumers are concerned about VAT. They are asking those that are spending or seeking to spend large quantities of money if they are aware of this decision, and it is concerning.

“What the government has done has squandered an opportunity post-Brexit to continue to support a vibrant, economically viable high-employment, high-quality sector. What they have done at a stroke is make us 20% more expensive and therefore less competitive to some of the major markets across the world.”

Heathrow has previously said publicly that the axing of airside tax free sales at UK airports has ‘baked-in a competitive disadvantage for UK tourism’.

The situation has been exacerbated by Covid-19’s harmful impact on UK retail, with popular names at Heathrow such as Accessorize and Cath Kidston entering administration, while Thomas Pink has ceased trading.

BOUNCE-BACK SPENDING

As reported, household electronics retailer Dixons Travel is also among the retail casualties, announcing in April the decision to shutter all 35 of its stores, 29 of which are located in airports.

In doing so, it blamed the drop in passenger volumes and the removal of airside tax free sales.  [since this interview, Heathrow has appointed airport-based electronics retailer InMotion to take on the eight lots to be vacated by Dixons Travel – Ed].

“This has had an impact; we have a small number of units going through a transition period,” said Brown, who in turn expressed his pleasure at the work undertaken by LHR to fill the spaces vacated by those companies.

“What is stopping those stores opening is the fragility of the outlook. What we are asking government to do is to follow the science: we think it is right that there should be more countries on that green list and are encouraged by the government’s messaging around double-vaccinated passengers being able to travel into the UK from an amber list country without quarantining and we would support that and encourage government to move quickly.

“On the flip side, we haven’t seen that in the numbers yet as there has been this benefit of bounce-back spend and spend per passenger even in those [luxury] categories has been good.”

Heathrow, Dufry and Global Blue waged an ultimately unsuccessful bid to overturn the decision to end VAT RES and the ESC, with the High Court ruling  in favour of the government in May.

“While we didn’t win, the court did recognise a number of the points that we made and certainly along with others, I, on behalf of Heathrow, continue to have direct dialogue with colleagues at the Treasury, explaining the emerging data, reiterating what the impact we think this will have in the medium-to-long term and continuing to try to lobby government on alternatives ways to getting back to being competitive,” maintained Brown. “This is not asking for a handout, it’s asking for a level playing field.”

In the first three months of this year, retail income plummeted by 80.1% to £27 million/$37.3 million ‘due to lower passenger numbers and the mix of retail service available due to governmental restrictions on non-essential shops’. Revenue from retail concessions sunk 90.2% to £6m/$8m.

While retail revenue per passenger lifted by 73.2% to £16.07 versus 2020, LHR notes this is ‘largely distorted’ due to reduced passenger volumes.

Nonetheless, Heathrow reports that passengers have been spending – irrespective of the traffic light system – since the UK government eased restrictions on travel from 17 May.

“Although passenger numbers are lower, the penetration rate percentage-wise is higher and the spend from each passenger is also higher,” confirms Brown.

In its most recent June Investor Report, Heathrow forecast a 19.2% fall in retail income year-on-year to £189m (£136m in a severe case scenario) in 2021.

Looking forward, Heathrow remains confident in the recovery of DF&TR at the airport.

“Heathrow remains open for business; the vast majority of retail stores are open in Terminal 2 and 5,” said Brown. “Although the passenger numbers are lower, they are concentrated in two terminals which has been more economical for us to run the airport from a cost point of view and for our retail partners to be able to operate.”

Orlebar Brown will open a shop in Terminal 5. In addition, a refurbished bookstore operated by WHSmith has taken one of the Thomas Pink spaces and the Rolling Luggage business has been replaced by Case on unit-by-unit basis.

Passengers to the airport will also enjoy craft beer and food courtesy of Big Smoke Brew Co in partnership with Airport Retail Enterprises at Terminal 2.

For the full interview with Heathrow’s Fraser Brown, watch out for the Top 10 Airports report available in the TRBusiness July/August e-zine.