Watches of Switzerland says 'tourist tax' dragging on UK market

Watches of Switzerland has revealed declining sales in the UK as the luxury retailer begins to feel the impact of consumers reining in spending.

The UK’s biggest retailer for Rolex and Omega watches flagged that a so-called tourist tax means it made minimal returns from overseas shoppers.

Sales fell by 7% in the UK and Europe in the three months to the end of January, compared with the same period a year ago, to £222 million.

Households feeling the pinch amid tougher economic conditions has led to a slowdown in consumer demand in the luxury retailer, the company said.

Luxury watches were impacted as well as non-branded jewellery, which it said saw unusually high levels of discounting and promotions.

Shoppers were choosing to spend disposable income on other products such as clothes and makeup, restaurants and travel over the period, Watches of Switzerland flagged.

Furthermore, the company told investors that its financial performance was being driven by UK shoppers, with it making minimal returns from tourist spending.

This is because the Government scrapped VAT-free shopping for tourists a few years ago, a move which particularly effected luxury retailers who rely on affluent tourists.

Other luxury retailers including Burberry and Mulberry have blamed the reversal of tax-free spending on weaker sales in the UK, with shoppers instead choosing to spend more on luxury items in other European cities.

But Watches of Switzerland said it was "encouraged" by the announcement of a review into the controversial measure by the Government’s independent forecaster, which is set to examine the costs and benefits of the decision.

The conclusions of the review could be published alongside the Chancellor’s spring Budget next month.

Meanwhile, Watches of Switzerland reported a stronger performance in the US where consumer demand remained more resilient, with sales rising 8% at constant currency over the latest quarter.