Luxury fashion group Burberry has warned over the impact of the move to scrap tax-free shopping for tourists as it revealed tumbling festive sales.

The group – famous for its distinctive trench coats – said while revenues will not see a big hit this financial year due to current travel restrictions, the impact will be “more significant” when tourist trade resumes.

It said sales are likely to shift away from the UK as a result and it is now looking at ways to soften the blow when tourists return to mainland Europe.

The scheme allowing VAT-free shopping for tourists to the UK ended on January 1 after the December 31 Brexit transition deadline, at a time when Burberry is also facing trading woes amid the coronavirus pandemic.

It reported a 9% slump in global same-store sales over its Christmas quarter as the crisis forced shops to shut and slashed tourist trade.

Trading was impacted particularly badly across Europe, the Middle East, India and Africa (EMEIA) – including the UK – where comparable store sales plunged 37% in the 13 weeks to December 26.

It saw nearly a fifth (19%) of stores closed on average across the region in the quarter due to coronavirus lockdowns and tightening restrictions.

The group currently has 15% of its stores closed globally and 36% operating with shorter trading hours.

But Burberry struck an upbeat tone on the outlook as there were signs of recovery, with third quarter sales jumping 11% across Asia Pacific thanks to a bounce back in China and Korea.

Marco Gobbetti, chief executive of Burberry, said: “Our localised plans and digital capabilities helped drive growth in rebounding markets and we implemented our planned reduction in markdown.

“While the short-term outlook remains uncertain due to Covid-19, we are well placed to accelerate when the pandemic eases.”

Shares rose 5% after its update.

Sophie Lund-Yates, an equity analyst at Hargreaves Lansdown, said the tax-free shopping blow will “disrupt Burberry’s established revenue patterns”.

She said: “The scheme made the UK a popular destination for retail tourists from the Middle East and Asia alike, and these shoppers made up a significant chunk of revenues.

“The question now is whether these sales will be recouped in other regions.

“Burberry will be busy trying to cook up ways to stem any potential sales outflow for when travel normalises – achieving that looks a likely outcome, with new ranges resonating well, suggesting the group’s artistic direction has the ability to stand in good stead.”