Tourist tax forces Harrods to replace luxury handbags with cheaper alternatives at airport shops

Luxury department store, Harrods, has opted to swap its most expensive handbags with £250 versions at airport shops after tourists are deterred from spending after VAT-free shopping was axed.

The company blamed Rishi Sunak’s tourist tax for deterring wealthy overseas shoppers from splurging in the UK.

Michael Ward, Managing Director of Harrods, told The Telegraph that Harrods had been forced to "reshape the whole of the price architecture" in its airport stores after a slump in tourist spending.

Now, its Heathrow and Gatwick concessions are focused on selling robes and beachwear, with most products falling under £250.

Ward added: "We used to be able to sell a £1,000, £1,500 handbag and people would save up and say ‘I’m going to have that bag and I’ll buy it at the airport because I can get £200 or £300 tax back’."

Warning things are "only going to get worse", he added: "People have forgotten that [the UK’s tax-free shopping] has disappeared and they’re actually quite shocked when they go to buy it at the airport and they’re not getting a bargain."

This follows the Government’s decision to axe VAT-free shopping for tourists visiting Britain, following the UK’s departure from the EU.  Luxury retailers such as Mulberry and Rolex corroborate Harrods' notions, closing their stores in Heathrow in the wake of the move. Earlier this year, Heathrow warned it was struggling to fill empty retail units.

Facing criticism earlier this year, the government responded : "Extending the scheme to EU nationals could cost British taxpayers around £1.4bn a year, meaning taxes would need to go up to pay for it at a time when we’ve already taken difficult decisions to get debt falling."

Despite this news, Harrods is still investing heavily in its flagship store. The department store revealed its revenues had yet to return to pre-pandemic levels in its latest financial year. The company reported revenues of  £994 million for the year ending January 2023, compared to £1 billion in 2020. However, it was an improvement from last year, when Harrods posted revenues of £654 million.

Read TheIndustry.fashion's feature: It's time for a tax-free shopping U-turn, Mr Sunak.