One sector of the economy that benefitted initially after the referendum is retail, as international shoppers were able to take advantage of depreciation of the pound when visiting the UK. In the 12 months after the referendum, tourist tax free sales in the UK – purchases made by non-EU shoppers – grew by 26%.
Indeed, 2017 represented a record year for the UK tourism sector, with many tourists spending the additional pounds that their foreign currency could buy. According to VisitBritain, the UK’s official tourist board, the number of visits in 2017 grew 4% to a record 39.2 million. And, even better news for retailers, the value of tourist spend grew by 9%, to £24.5bn – a new record.
It is important to understand the significance of the opportunity that international visitors present for the British retail sector. Retail remains the private sector’s single largest employer. In the first quarter of this year, the number of people employed by retail stood at 4.22 million according to the Office for National Statistics. Additionally, retail alone is responsible for around 9% of the UK’s GDP.
The multi-billion pound market for international visitors is a growing feature of retail and the sector must enhance its efforts to better understand and cater to this market. The big spenders from emerging markets are representative of a sea change and, for some major European retailers, international shoppers can now account for up to 60% of all sales, spending almost four times more than domestic shoppers across Europe.
According to Planet Tax Free transaction data, in the first half of 2018 the average transaction value among UK domestic shoppers in stores offering VAT refunds was £109; for non-EU shoppers, it was a £584 – over five times as much. Moreover, Chinese shoppers spent an average of £838, and those from Hong Kong spent a staggering £1,007 per purchase.
However, in 2018, sterling is slowly creeping back upwards in value, and with it has come a reciprocal decrease in the spending power of international consumers. In 2017, the average exchange rate between sterling and the US dollar was $1.29 but the average exchange rate in 2018 is $1.35. This, however, is only a rebalancing back to natural pre-Brexit levels. But, retailers must also realise that international shoppers are becoming business critical to the UK high street, and it is crucial that they make every effort to capture their fair share of this spend.
So how can retailers ensure that they capture a greater share of this spend? Just as online retail is evolving at a significant rate, physical stores are too. Floor staff can no longer rely solely on product knowledge or a friendly demeanour. Instead, the cultural nuances of different shopper demographics must be understood, and sales behaviour adapted accordingly.
For example, Middle Eastern customers, buy gifts for friends and relatives more often than any other large nationality grouping. Therefore, there is an opportunity for multiple sales to these tourists from a single store visit. Similarly, the technology used by international shoppers is also crucial. Emerging payment platforms such as AliPay or WeChatPay are almost as commonplace as debit cards in China, and retailers must be able to process payments via means that are familiar to international customers. Finally, a recent survey by Planet Tax Free revealed that over 70% of US tourists visiting the UK were not familiar with the VAT refund scheme before they came to the UK and were not offered the service in many stores. Simply asking all tourists if they are from outside the EU would increase the percentage of sales to these tourists.
The potential that high-spending international shoppers present is huge: the tax free shopping market is estimated to be worth a global $60bn per year, with only 50% of the market actually realised, and the UK’s position as a world-leading tourist destination would suggest that retailers could more effectively capture a greater share of this. If retailers take notice of the growing and critical role that international shoppers are playing in the sector, and take the correct measures, they can not only mitigate further sales declines after the post-Brexit-vote rebalancing, but even boost sales to a level that outstrips pre-referendum volumes.
By Patrick Waldron is CEO of Planet, an international payment service provider.