Heathrow Faces Setbacks in Luxury Shopping Calls for Return of VAT Free Sales

Heathrow Airport’s retail chief Fraser Brown surveys the bustling Terminal 5, where a row of designer shops and high street favourites cater to millions of travellers every year. Terminal 5 alone boasts the UK’s top-performing Starbucks and the world’s most successful Pret A Manger by weekly sales. The airport is one of Britain’s biggest shopping destinations, offering 275 retail outlets and 75 food and beverage units. On a typical day, Heathrow sells close to 1,000 Toblerones and over 300 bottles of perfume an hour, testifying to the scale and vibrancy of on-site trading.

As Europe’s busiest airport, Heathrow is on track to welcome a record 84 million passengers this year. Passenger numbers have rebounded to pre-pandemic levels, and the retail division is enjoying an upward trajectory in overall sales. Yet beneath the surface lies a challenge threatening one of Heathrow’s most lucrative retail segments. The luxury category, a hallmark of the airport’s retail prowess, has suffered a significant blow since the UK government abolished VAT-free shopping for overseas travellers in 2021. Sales in the sector have plunged by a substantial double-digit margin, forcing premium brands to downsize or exit altogether.

Notable casualties include the reduction in size of Burberry’s Terminal 2 shop, the departure of all Mulberry stores, and Rolex’s withdrawal from Terminals 3 and 4. Even those brands maintaining a presence are now less likely to invest in shop refurbishments. Louis Vuitton, for example, channels investment into its Istanbul airport flagship rather than its London outpost. To offset this downturn, Heathrow has broadened its approach, bringing in popular mid-market brands like Lululemon and expanding Harrods’ collection of entry-level gifts—each attracting strong demand at more modest prices.

Brown, who has led the retail division since 2018, asserts that the loss of VAT-free status has cost not only Heathrow but the wider UK economy dearly, as high-spending travellers redirect their purchases to rival hubs in Europe where tax-free shopping still thrives. Heathrow’s retail model relies on taking a cut of turnover rather than charging excessive rents, making overall spend a critical driver of airport revenue. Brown expresses frustration at the government’s resistance to reviewing the tax regime and continues to campaign for its reinstatement, insisting that regaining competitiveness is crucial for both airport finances and national economic growth.

The pressure on luxury sales comes as Heathrow advances its ambitious development plans. Expansion is a recurring theme, with the long-delayed third runway project aiming to unlock further capacity for retail, food, and passenger amenities. Without expansion or renewed tax incentives, Brown warns that Heathrow will fall behind international rivals such as Hong Kong, Istanbul, and Dubai, who are rapidly increasing capacity and appeal to global travellers.

Operational updates also aim to enhance the passenger experience and stimulate spending. Investment has rushed into new security scanners, slashing queuing times and removing the need for passengers to unpack liquids or laptops. On the busiest day in August, a remarkable 95 per cent of passengers cleared security in under five minutes. The airport has also introduced click-and-collect services for last-minute shopping convenience, and efforts continue to align everyday prices in outlets like WH Smith and Pret A Manger with those found on the UK’s high street to prevent perceptions of overcharging.

Heathrow’s case for change highlights the critical intersection of policy, infrastructure, and consumer behaviour that will shape both its own future and that of the UK’s global trading position. Without supportive measures, the risk of losing high-value transactions to other European airports remains a real threat, with consequences reaching far beyond the perimeter of the airport itself.