American tourists can get a much better deal on a new Louis Vuitton handbag in Paris than in London. This is becoming a problem for the British capital and its home luxury brands, writes The Wall Street Journal..

The UK government canceled tax-free shopping for international tourists at the end of 2020, saying the country can no longer afford to offer the benefit, which the Treasury estimates costs ?2bn a year, worth $2.4bn..

Currently, London is the only major European shopping center where tourists cannot get back the 20% value-added tax they pay on luxury purchases.. This means that London is missing out on an opportunity to capitalize on the boom in spending by wealthy American and Middle Eastern tourists that began last summer and benefited the major cities of the European continent, mainly Paris and Milan.. In January, VAT receipts from Middle Eastern tourists to mainland Europe, a good indicator of luxury spending, rose 224% from the same month in 2019, according to tax refund company Global Blue..

American spending was even more significant, with receipts up 297% over the period. A strong dollar means discounts available on luxury goods in Europe have been historically high recently, with US tourists outperforming spending by all other nationalities in every month of 2022. Planet Intelligence data also shows that Britons are spending heavily on tax-free goods in the European Union..

London-based luxury goods retailer lobbies UK government to restore VAT exemption for foreign purchases. Major department stores such as Harrods, owned by Qatar's sovereign wealth fund, and Selfridges, which was sold for ?4 billion to Thai and Australian investors in 2021, were heavily dependent on tourist spending before the pandemic.. The issue became even more pressing after China reopened its borders last month.. Chinese tourists, historically the biggest spenders in the luxury industry, are expected to return to the country soon..

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UK tax rules are no problem for big brands like Louis Vuitton or Gucci, which can make up for lost London sales at their European flagship stores.. Even Burberry is global enough to offset earnings elsewhere. But she noticed a change in shopping patterns.. Burberry's chief financial officer recently said that sales to Middle Eastern tourists in the latest quarter were up 122% in European stores compared to the same period in 2019, but only 14% in the UK..

Mulberry's London listing is more at risk as it still earns about half of its UK revenue.

Prior to the change in tax rules, the Bond Street handbag brand shop accounted for about 50% of its sales to foreign tourists, a share that had dropped to less than 5%..

If foreign tourists continue to shop in Europe and not in Britain, landlords on the most prestigious streets of the British capital could suffer. In 2022, London's New Bond Street dropped out of the top three most expensive shopping streets in the world, according to real estate company Cushman \u0026 Wakefield.. It was overtaken by Montenapoleone Street in Milan, where rents are now 9% higher than in 2019.