The controversial 'tourist tax' means London won't see the Chinese New Year "dramatic spend uplift" it experienced pre-pandemic, it has been predicted.
The warnings that spending may not be as high as seen in prior years comes despite a fresh forecast that anticipates footfall will rise by as much as 10% in central London this weekend compared with the prior weekend.
Scores of overseas tourists and Brits will hit shops and fill up restaurants as they enjoy Lunar New Year celebrations, with Year of the Dragon related goods on sale in certain stores. There are events over the weekend, with a parade beginning on Charing Cross Road on Sunday.
Diane Wehrle, chief executive of Rendle Intelligence and Insights who made the footfall forecast, said numbers would also be lifted by domestic visitors in London thanks to half term starting.
She added: "Pre-Covid in 2019 Chinese New Year fell on Tuesday February 5 and the rise in footfall over the weekend at the end of that week was 5% in central London from the weekend before. In 2023 Chinese New Year fell on Sunday January 22 and footfall was 8% higher over that weekend."
But Wehrle also said the ability for overseas visitors to buy certain products across Europe for less than in the UK means that fewer luxury purchases could potentially be made, "impacting trading performance over what is a key shopping weekend for central London".
A tax-free shopping perk had made UK purchases 20% cheaper for international visitors, but the government pointed out the scheme could cost British taxpayers around £2 billion a year and mainly benefits the capital.
It was axed in 2021 but various retail sectors, including suit makers, accessories brands and watch sellers, have seen trade negatively impacted since then.
In addition the high end fashion sector has been facing a recent slowdown in luxury demand, with wealthy shoppers looking at the impact of rising inflation and economic uncertainty.
Dee Corsi, who leads business lobby group New West End Company said: "Historically, Lunar New Year has been a significant day for retailers in the West End to court international visitors, with spend on this day in 2019 almost doubling. With Chinese visitors now coming back in numbers, following the lifting of restrictions on group travel last number, this will be the first truly ‘post-pandemic’ Lunar New Year in the West End, and our retailers will be pulling out all the stops to drive a similar uplift in spend."
But Corsi added: “That said, the continued absence of tax-free shopping is likely to preclude the type of dramatic spend uplift we last saw in 2019.”
She said: “Chinese visitors are particularly price sensitive, and we are seeing this play out in a persistent gap between footfall and spend, even as visitor numbers recover. In September 2023, the first full month of travel from China, visitor numbers were within 2% of the figure for the same month in 2019, but the amount they spent was down 58%."
Hospitality sector looks for sales bounce from Chinese New Year
Kate Nicholls, chief executive of trade body UKHospitality, said: “Chinese New Year has historically provided a spike in trade for hospitality, most notably for businesses in Chinatown. We’re hoping that will be the case once again this year and that other venues, like our pubs, theatres and hotels, also feel a jump in sales from the celebrations.”
Helen Brocklebank, the boss of trade body Walpole which counts high end retailers as members, said: "It all comes down to a fight for wallet share at key times like Lunar New Year, and the continued absence of tax free shopping means UK luxury is in the ring with its hands behind its back."
It was reported earlier this month that Chancellor Jeremy Hunt has asked the Office for Budget Responsibility to look at whether the scrapping of VAT-free shopping for tourists should be reversed.
A HM Treasury spokesman said: “We keep all taxes under review and recognise the value that retailers bring to Britain. That is why we announced a £4.3 billion business rates package at Autumn Statement to support businesses and the high street."
He added: “VAT-free shopping remains available for all non-UK visitors buying items in store and having them sent directly to their overseas address.”
