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Are Americans Better Off Shopping Luxury Retail in Europe?
Vogue Business recently reported that many Americans this summer have visited Europe and done most of their luxury retail shopping abroad for European luxury goods and designer brand-name products. Since Europe has generally lower prices and a plethora of summer sales, there seem to be fewer reasons to buy high-fashion products in America.
Additionally, shoppers can benefit from the ability to claim value-added tax (VAT) back after shopping in France and Italy. This added value tax is equal to 20% of the item purchased. According to the European Commission, “You will receive an invoice for the goods. You must show the invoice, the refund form, the goods and any other necessary documents to the customs officers of the last EU country you leave.”
Meanwhile, the UK no longer offers this refund to tourists. The Evening Standard in the UK reported that “the VAT refund scheme ended in 2021 after the UK left the EU, as part of a post-Brexit consultation about taxing items transported across borders for personal use.” In the aftermath, many businesses are calling for the UK to reinstate tax-free shopping for tourists to help generate more revenue and bolster the economy.
As a result, American shoppers are flooding Paris and Milan to shop for luxury retail brand-name goods. According to the Robb Report, many Americans shop in Europe and the UK to “take advantage of the sinking value of the euro and pound against the US Dollar.”
The WSJ covered how many savvy Americans did their 2022 holiday shopping in Europe as well. According to the report, “Spending by American tourists in the region rose more than 40% during the week of Black Friday compared with the same period in 2019, before the pandemic, according to value-added-tax refund data from payments company Planet.” Part of this recent surge is due to the strong value of the U.S. dollar, which is at its highest level in two decades.
With the 2023 holiday season fast approaching, this luxury retail shopping trend seems poised to continue as long as the dollar doesn’t weaken too much and inflation doesn’t worsen.
But not everything is cheaper in Europe. A good approach is to focus on European brands rather than American or Asian brands, which are generally better priced in the U.S. Shopping blogger Alyssa Prado explained how “the key is to focus on fashion and beauty, especially high-end and luxury items, and you’re bound to find some treasures.”
Of course, one of the most important things you need to consider when luxury retail shopping during your travels is how you’ll be transporting all of the things you buy back home — but that’s a whole other story.
Discussion Questions
DISCUSSION QUESTIONS: Should the UK bring back sales tax refunds for tourist shoppers? What does this mean for luxury European brands selling their products through retailers in the U.S.?
Poll
Loading …BrainTrust
David Naumann
Marketing Strategy Lead - Retail, Travel & Distribution, Verizon
Neil Saunders
Managing Director, GlobalData
The economic dynamics of the strength of the U.S. dollar and VAT refunds is a compelling reason for Americas to travel to Europe, especially France and Italy for European luxury brands. While this is a valuable proposition today, it won’t last forever. It would be interesting to know if Americans are actually scheduling vacations in Europe because of this dynamic or if they are just making extra purchases while they are in these countries on trips for other purposes.
I met a man at a trade show recently who carried beautiful designer bags. He flies to Paris and saves a bundle on each item he purchases, enough to pay for the airfare. Bonus: he gets to visit Paris. Sounds like a plan to me!
We just returned from Amsterdam and Paris. Not just fashion brands are cheaper… everything is cheaper. American brands, Asian brands, non-luxury, restaurants, and hotels. You win even without conversion. You win even without collecting your VAT upon leaving.
The UK can do whatever they want. Brexit was such a poor economic decision that there is no righting this ship. They went from a power in the largest trading block in the world to nothing. Today, they are simply a flyover.
The UK did not go to nothing, it is still the fifth largest economy in the world. As for tourism, the UK is ninth in the global ranking of international tourist arrivals and it is the most visited destination in Europe of travelers coming from the US. The VAT decision has nothing to do with Brexit; it is a policy of the UK government (a stupid one in my view) which they could change anytime they want.
Forgive my exaggeration. Brexit has not gone well for the UK. Today, their economic growth is measured in low tenths of a percent. There seems to be a movement to rejoin the EU, which will never happen. Polls show that the majority of the population would like to turn back the clock.
According to the WEF, UK GDP grew faster than Germany, Italy, France and the wider Euro area last year. True, UK growth this year is forecast to be a very poor 0.4%. But then Germany is expected to contract by 0.3% and growth in France is a very modest 0.8%. There are wider forces in play than just Brexit.
Travel is back and, for Americans, that means more trips to Europe. Many indulge in a spot of luxury shopping while on vacation and, given the beautiful boutiques of Paris and Rome, who can blame them! One place to avoid, and I say this with a heavy heart, is the UK. The government, in its infinite wisdom, has refused to reinstate tax free shopping for tourists. This means visitors pay the onerous 20% sales tax (ironically called value added tax) on purchases. This makes European locations more desirable, while the UK loses out. Indeed, despite travel to the UK being up sharply, tourist spending in London is down. Almost every single luxury brand operating in the UK has told the government that its policy is harming the capital. However, they steadfastly refuse to do anything about it.
The UK government Brexit was poor decision, and moreover in its great wisdom, has refused to reinstate tax free shopping for tourists.
Many businesses are calling for the UK to reinstate tax-free shopping for tourists to help generate more revenue and bolster the economy. As a result, American shoppers are flooding Paris and Milan to shop for luxury retail brand-name goods.
Spending by American tourists in the region rose more than 40% in 2022. Part of this recent surge is due to the strong value of the U.S. dollar, which is at its highest level in two decades.
I mean, you get to shop in Europe…that alone makes the value proposition stronger for buy one’s luxury goods “over there”!
The ONLY negative I see to this is minor–I was recently in Spain, and for the VAT refund we needed to go to three different counters in the Madrid airport, and investing about two hours of wait time and dealing with different officials in order to get the refund. Not fun.
*Today’s thread, brought to you by the courtesy of the EUChamber of Commerce.
I’m not sure I understand the logic of one of the points made here: yes it makes sense that a good purchased in Europe is cheaper after the VAT is refunded – compared to it not being refunded (DUH!) – but I don’t think it’s charged at all if it’s exported to the U.S.; so it hardly seems advantageous to go to Europe just to shop…particularly once travel costs are figured in.
As for the UK. they seem to have a lot of issues , in general (I think we were wise to get out of there a quarter millenium ago )