LONDON — After a summer of riots and looting following the murder of three young girls in Southport, England, British retailers and brands face a turbulent autumn as taxes and business costs soar.

British media warn of “grisly” tax rises as the new Labour government raises public sector pay and curries favor with unions to end years of strikes.

Business leaders, already worried about the escalation of war in Ukraine and the Middle East, fear that the government’s sympathy for unions and drastic new laws to protect workers will slow economic growth and discourage investment in the UK.

Retail, especially luxury fashion and accessories, is showing no signs of slowing down: London’s West End is filling up, brands like Jacquemus are making their debut, and hotels are preparing for a steady stream of tourists from the US, Europe, and the Far East.

The Chinese are still staying away, put off by the high cost of travelling to Europe and the abolition of the tax-free shopping law in Great Britain, which the new left-wing government is unlikely to reinstate.

Commercial real estate “unpredictable”

Although sentiment is positive, the commercial property market remains “highly unpredictable,” says Joanna Lea, Mayfair Retail Portfolio Director at Grosvenor, which owns prime retail properties across London.

Lea described 2024 as a year of recovery after a challenging 2023, but also pointed out that doing deals at the moment is like “playing Wimbledon and not knowing where the balls are coming from.” The food and beverage business is thriving, she said, and luxury brands are willing to wait for the right retail space.

In Mount Street in the Mayfair district, where brands such as Moynat, Balmain and Christian Louboutin are based, there was a “flight to quality”. Grosvenor achieved rents for some of its properties that were 25 to 30 percent above the asking price.

Later this year, Goyard plans to expand a store on Mount Street and move to number 103, while Richemont-owned Dunhill will open a new store on nearby Grosvenor Street in mid-2025, not far from the brand’s current flagship store at Bourdon House in Mayfair.

Richemont is particularly active in acquisitions in London. According to industry sources, the luxury giant bought the Boodles building at 178 New Bond Street in order to expand the Cartier shop located right next door.

Richemont declined to comment on Dunhill’s move and Cartier’s expansion plans.

In the Mount Street area, the Matches townhouse on Carlos Place is closing following the company’s bankruptcy earlier this year, but Grosvenor declined to say who the new tenant would be.

Despite tax hikes, Labour’s pro-union policies and the flight of wealthy “non-doms” from London to tax havens such as Milan and Dubai, Lea and others believe London can still attract – and retain – luxury brands.

Wealthy people, Lea said, “still want to be in London. The schools and infrastructure make it easy to live here and that means the brands have to be here too.”

According to international property company Savills, there is little vacancy in central London, domestic spending is recovering and “affluent villages” such as Sloane Square and the surrounding area, currently being redeveloped under the Cadogan Estate, are thriving.

Economy recovers

According to Savills, the country is in a better economic position than it was 12 months ago and “confidence is returning”. In the summer, the Bank of England cut mortgage rates and is likely to do so again in the autumn, which should lead to more property investment.

Dee Corsi, CEO of the New West End Company, is also cautiously optimistic about the current market situation.

She said the summer had been very busy in central London, thanks to tourists coming to Europe for the Olympics (or choosing London over Paris because of it) and the good weather, albeit only at the end of July. But retailers still need government support, she added.

“We cannot rely on seasonality or sporting events to drive visitor numbers. We are calling on the Government to put forward a targeted plan to boost tourism all year round, benefiting businesses and workers across the country. While there is no silver bullet, reintroducing tax-free shopping would be a simple and effective first step to putting ‘Brand Britain’ back on a truly competitive footing,” she said.

The lack of tax-free shopping has been a major blow to retailers across the UK, who have seen their sales of expensive items migrate to France, Italy, Spain and other countries that also offer this benefit to non-EU tourists.

Earlier this summer, Andrew Keith, the outgoing CEO of Selfridges, blamed the lack of tax-free shopping and other factors for the department store chain’s recent wave of layoffs.

In a memo, Keith said the continued lack of a tax-free purchasing system in the UK had “significantly impacted international sales”. In May, the store announced it planned to cut two percent of its workforce, or about 70 jobs, at its headquarters.

(In July, Selfridges also confirmed that Keith would step down of his own accord and that his successor would be André Maeder, CEO of Selfridges Group.)

Despite the wake-up call from local retailers and London Mayor Sadiq Khan’s desire to reinstate the tax-free system that was abolished in 2021, the Labour government is unlikely to reinstate it.

Shops remain open

Yet retailers still come.

Corsi said the West End, which spans Mayfair, Soho and the Oxford and Regent Street areas, will welcome a number of new names over the course of this year.

These include French accessories brand Polène, which will open its first UK boutique, immersive retail specialist Future Stores, which is opening its first flagship store on Oxford Street, and high-end sportswear company Vuori, which is planning its second London store on Regent Street, not far from US brand Alo Yoga.

Other brands planning to open new stores in the West End include Jacquemus, Moncler and Carolina Herrera on New Bond Street, Rolex on Old Bond Street and Ikea, which will take over the former Topshop flagship store in Oxford Circus.

Like so many retailers, Europe’s luxury giants are bullish on London. With property prices still relatively low and interest rates high, they have been quietly expanding their portfolios and pushing out investors who rely on banks to finance their deals.

LVMH Moët Hennessy Louis Vuitton, Max Mara’s Maramotti family, Chanel, Prada, Richemont and the Swatch Group have stocked up on prime real estate or signed long-term leases on buildings to secure the best possible locations in the British capital for their stores.

According to Savills, luxury groups have been “very active” in London and internationally, with 2023 being a peak year for investment. “They were particularly active immediately after the pandemic, taking advantage of the uncertainty, and continue to do so,” the company said.

The big brands – and their owners – are “thinking long-term and trying to protect their positions” in London and other major fashion capitals such as New York, Paris and Milan, in anticipation of better times, Savills added.