The international appeal of Europe’s shopper market has started to make a slow but positive recovery in the last quarter as underlying currency strength across emerging Asia-Pacific (APAC) markets has boosted sales, according to the Planet Shopper Index.
The figures come from international payments company Planet, who facilitate VAT refunds for international shoppers, an indicator widely seen as an accurate proxy for the purchasing power of source markets and retail strength of destination markets.
The bounceback of APAC currencies compared with the previous quarter, combined with the ever-growing population share and income of the region’s middle class, has resulted in increased travel and retail activity among its consumers. This has coincided with an increase in spending power abroad.
While spending power abroad is increasing for APAC shoppers, in order for the UK to harness the significant potential of international shopper spend, the government needs to upgrade and modernise its Tax Refund Systems, creating a 100% digital system that is efficient, economical and user friendly.
The current paper-based VAT refund system is dated and causing the UK to fall behind international competitors offering digital Tax Free shopping services. London’s two international shopping centres of the West End and Knightsbridge account for over 80% of Tax Free shopping in the UK, and the country risks a further loss of international competitiveness if it exits the customs union post-Brexit and fails to modernise the Tax Free refund process.
The Index combines Planet’s data on Tax Free purchases across Europe for each source market, with key economic measures including inflation, GDP growth and currency movement, to produce a robust score for each country, illustrating its position in the global league of shopping nations.
The report highlights the correlation between income growth and international travel, evident in the performance of Vietnam, which emerged as having the second-highest average spend per transaction (ATV) in Q4 2018. Vietnamese shoppers were one of the biggest climbers in the last quarter, parting with an average of €902 per purchase.
This trend is set to continue, with those in Vietnam categorised as upper-middle-class spending 87% more on international travel per year compared with middle-class citizens, and the upper-middle-class share of population set to almost double from 6% in 2015 to 11% by 2020.
This also holds true for China, which retained its position at the top of the table for overall index score, which includes Tax Free Sales, ATV, inflation, currency and economic growth. When shopping abroad, the ATV of Chinese shoppers was €801 and comes in spite of continued claims of trade war-driven shocks hampering growth.
The power of currency stability extends beyond the APAC region, with Morocco leaping six places on the Index league table as a result of the strengthening dirham and increased ATV among its international shoppers. It has experienced a Q4 currency growth against the euro and pound of 5% and 5.7%, respectively, which coincided with a 25% increase in ATV, to €475.
David Perrotta, UK country manager of Planet said, “International shoppers are increasingly becoming a key source of value to the volatile European retail market, with these consumers spending an average of 3.7 times that of domestic shoppers.
“Retailers should consciously think about the cultural nuances of their international shoppers, develop new and innovative ways to attract shoppers into physical stores and put experiential marketing at the heart of their customer offer.
“To bolster and futureproof the retail market, more needs to be done by retailers to capitalise on the growing purchasing power of international shoppers and the government must digitalise the Tax Free Refund system in order to encourage this lucrative customer base to choose the UK over other destinations.
“Updating the infrastructure of our VAT refund systems for international shoppers is business-crucial and economically critical. The possibility of the UK leaving the customs union could open Britain up to an additional 24m arrivals of tourists from EU nations; potentially equating to a 187% rise in the current number of eligible Tax Free Shopping tourists to the UK, and at a time when the refund process takes far too long.
“The need for retailers to capitalise on this opportunity has never been greater and we need to take action so that international shoppers continue to consider the UK as valued place to visit.”