Geopolitics and Luxury: post-Brexit challenges and opportunities

We are now a far cry from the study commissioned in 2019 by Walpole - the UK's official luxury goods trade body - and carried out to highlight the losses to the sector if Brexit had taken place.

The study predicted losses of up to £6.8 billion due to barriers to exports. The Walpole Group represents around 250 high-end British brands, including the iconic Burberry - now out of the top 100 companies listed on the London Stock Exchange - Bentley, Alexander McQueen and Harrods. Before Brexit, around 80% of luxury goods manufactured in the UK were exported, mainly to Europe. But where do we stand today? How have the UK's leading labels coped with this crucial moment?

The Brexit deal, which reached the dying moments of 2020, provided for quota-free trade in luxury goods between the EU and Britain, which was widely welcomed by the sector. The British Fashion and Textile Association said these terms of the deal had secured the £7.4 billion worth of textiles the UK sold to the EU each year, its largest market. But there are still a number of grey areas: administrative formalities and customs declarations that weigh heavily on logistics, as well as the 'rules of origin' that stipulate a maximum authorised percentage of 'non-originating materials' (components from neither the UK nor the EU) for each product. The product cannot be exported to the EU duty-free if these rules are breached. The other black mark is the abolition of VAT for international buyers, a real cause for concern, as it prevents foreign travellers from accessing the 20% tax refund.

The day after the measure was implemented, major luxury brands, including Gucci and Hugo Boss, sent an open letter to the government, warning that the decision to end tax-free shopping would cost England billions of pounds in losses (£1.8 billion according to estimates by the Centre for Economics and Business Research).

In 2022, Finance Minister Kwarteng took control of the problem under pressure from the retail and luxury goods industries in general, and relaunched a VAT-free shopping scheme for foreign visitors to the UK, allowing tourists to obtain a 20% refund on leaving the country on goods purchased in the high streets and airports of England, Scotland and Wales. However, former Prime Minister Liz Truss, for purely political reasons and because of her quarrels with the minister in question, stopped the reform dead in its tracks, causing the issue to go back and forth several times and destabilising upmarket retailers.

The UK Treasury re-examined the abolition of tax-free tourist shopping this year, but the situation has remained the same. Fashion brands such as Burberry and Alexander McQueen have seen their export costs rise considerably due to the imposition of customs duties of between 10% and 12% on goods exported from the UK to the EU. These additional costs have been passed on to consumers in the form of higher prices for their products, affecting demand and sales.

Despite these obstacles, and the current dark period for the iconic Burberry brand, British luxury has fared rather well, although it is not the fashion sector but rather the automotive industry that is coming out on top: 2023 was Bentley's third-best year in terms of sales, and Jaguar Land Rover posted record sales last year, up +35% on the previous financial year. Rolls-Royce and Aston Martin also performed admirably.

According to Walpole, the premium segment is worth £81 billion and could contribute £125 billion to the economy by 2028. The Labour landslide that swept the UK last July, which saw the appointment of Keir Starmer as Prime Minister, is expected to bring the UK closer to Europe once again and provide further impetus to the market's recovery.