How The Brexit Deal Will Impact Luxury Brands

The Brexit deal was a long standing implementation that was finally given a get go nearing the end of 2020, which not only made big news in the business world but will also have an immense impact within the luxury space.

The new VAT rebate for international buyers along with the effects of the pandemic has brought Britain under shadows, making it even more challenging for resurfacing the growth of luxury in the country.

According to the new policies of the deal, it concludes a zero-tariff and zero-quota trade for luxury goods between Britain and EU. This initiative was largely accepted and celebrated by the industry.

Although, getting rid of the VAT rebate- which initially allowed foreign buyers to claim back 20% of taxes has now been scrapped, causing major concern amongst international traders. The claim can only be processed if the buyers agree to ship the purchase directly home.

After this new development, The Center for Economics and Business Research has predicted to see a huge drop in international visitors by nearly 7.3%, resulting in a £1.8 billion loss.

Helen Brocklebank, CEO of British luxury trade group says that Britain’s growth post-pandemic will be slow, considering it is a much smaller luxury capital as compared to USA or China.

Britain has an exposure of 4 to 5% in terms of international luxury brands. It relies more on domestic brands like Burberry, which brings about 10% of the overall domestic sales.

How this stands as a disadvantage for British luxury brands is that people are more likely to buy luxury brands from the particular country it belongs to. For instance, tourists who visit Paris will prefer to buy a Louis Vuitton as compared to a Burberry, while also getting a tax refund.

In this given scenario, why would International buyers choose to invest in luxury brands from Britain?

Long-haul travelers, specifically from Asia shop for luxury brands keeping the hefty price difference in mind. This will drive a good majority of Chinese buyers to the European markets for luxury goods.

In terms of export reliance, UK is in for some success since 80% of their luxury brands are made for the overseas market due to its high demand, be it Burberry, Cashmere or Roksanda.

Currently, Britain is in talks with USA over implementing a Free Trade Agreement which would automatically result in a 25% tax on Saville Row, cashmere and British wool.

This could bring in a lot of opportunities for luxury brands to resurface and grow amidst new changes.