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Summary
- UK Government has announced to end tax-free sales at port of entry from 1 January 2021
- Overseas travellers would not be able to make tax-free purchases and claim VAT refunds on shopping products from the United Kingdom
- High street stores at UK airports are at a great hardship as travellers may prefer to shop from elsewhere
The catastrophe caused by the coronavirus pandemic in the high-street retail sector is likely to continue. Huge rents, coupled with the decline in customer footfall, has seriously dented the prospects of high-street retailers a lot. If it was not enough, that the British government has recently announced to end tax-free sales at port of entry such as airports, effective from 1 January 2021.
With the directive in place, overseas travellers would not be able to make tax-free purchases and claim VAT refunds on shopping products from the United Kingdom, next year onwards. The government argued that this makes its policies consistent with international tax principles.
The visitors hailing from the EU used to claim refunds on goods purchased in the UK through the VAT retail export scheme, which would also be withdrawn from next year onwards (1 January 2021).
Ending VAT refunds on shopping products from the United Kingdom could be detrimental for the high street retailers. Operational costs at airports are usually high, and this move by the government is a serious blow to the ailing retail sector.
However, overseas travellers would still be able to make purchases at these stores, and the products would be shipped directly to their overseas addresses. The government believes that the new regime, which is aimed at harmonisation, would bring the EU and non-EU travellers on the same page.
With new rules applicable from next year onwards, the high street stores at UK airports are at a great disadvantage as travellers would now shop from elsewhere. The trading performance might see a substantial fall at the beginning of 2021. Investors might consider tweaking their portfolio a bit, as the gains made over a period of time could easily be lost in a jiffy.
Let us put our lens through some of the high-street retailers listed on the LSE.
Dunelm Group Plc
FTSE 250 listed Dunelm Plc (LON:DNLM) has a diverse range of product offerings like furniture, curtains, blinds, bedding, rugs, and decors through its platform and facilitates multichannel convenience through the online, mobile, catalogue, and telephone orders.
(Source: Company’s filings, LSE)
The company made good progress in the pre-pandemic era. During the unprecedented crisis, the business model proved to be the strength of Dunelm. Growth was significant in the first two months of FY 2020; was ahead of the company’s expectations, resulting in an increase in demand following the store closures. The company revealed an increase in total sales of 6.8 per cent in the eight months to February, followed by a significant increase in unique active number of customers. Online sales were up by 105.6 per cent during the fourth quarter of 2020. The gross margin was up 50.3 per cent to 70 bps year on year, resulting from the gains of sourcing initiatives.
Must read: High Street Retailers Taking a Sigh of Relief with Lockdown Easing: Ted Baker, Kingfisher & Lookers
Dixons Carphone Plc
Dixons Carphone Plc (LON: DC.) is a London, the United Kingdom based General Retailing company that was formed in the year 2014, post-merger of Dixons Retail and Carphone Warehouse Group. The company operates as a telecommunications and electrical retailer.
(Source: Company’s filings, LSE)
The company has undertaken all necessary efforts in the wake of the unprecedented crisis. Dixon witnessed a fall in the Group’s adjusted profit to £166 million (2018/19: £339 million) because of poor sales in the Mobile segment followed by store closures. The statutory loss before taxation of the Group was recorded at £140 million (2018/19: loss of £259 million), which were weighed down by Mobile store closure costs in the UK.
Kingfisher Plc
FTSE 250 listed Kingfisher Plc (LON:KGF) is a home improvement company. As per the recent trading update, the Group’s LFL sales were up 21.8 per cent during the second quarter of FY20-21, driven by strong e-commerce growth and the phased reopening of stores in the France and UK from April mid. After the easing of lockdown restrictions, Kingfisher has continued to experience strong demand across its markets with Group LFL sales were up 21.6 per cent in the second quarter of FY20-21.
(Source: Company’s filings, LSE)
The company has been consistently performing well in the E-commerce category. The company had reported robust Q2 trading following a solid e-commerce performance, and the phased re-opening of stores in France and the UK. While the Group is entering the second half of 2021 with a favourable trading backdrop, second half visibility stays low (due to uncertainty caused by COVID-19) with the broader economic outlook.
Halfords Group Plc
Halfords Group Plc (LON:HFD) is the United Kingdom’s well-known retailer of cycling, motoring and leisure services and related products.
(Source: Company’s filings, LSE)
The Group’s overall revenue (like-for-like) fell by 6.5 per cent during the first quarter of 2021. However, on YTD basis the revenue (4 Apr - 21 Aug) was up by 5 per cent year on year. The revenue from Motoring and Autocentres segment was pulled in red during the first quarter. The company was not able to provide full year guidance due to prevalent uncertainties across the United Kingdom.
1 Year Comparative Chart: DNLM, DC., KGF, and HFD
(Source: EODHD/Others, Thomson Reuters)
The hardships for retailers seem to have extended for a period more than anticipated. Policy changes do not seem to benefit UK retailers at all. In the present scenario, the footfall of shoppers is already at an all time low. The fixed costs continue to dent the business owners for quite some time now. In addition, the end of JRS would also impact consumer behaviour and could further bring down the sales for the retailers. The policy changes will surely deter the confidence of business owners.
