European Luxury - Global Blue tourism spend data turns negative in March; Q2 looks
set to remain difficult
Tourism spend is an important component of luxury revenue making up c35% of sales globally
according to Bain. Our monthly report on VAT refund provider Global Blue's data gives us a good
indication of travel spend trends. Overall Q1 has seen a marked slowdown notably from the Chinese
consumer in Europe (-18.9% y/y vs. +51% in 2015) likely due to the fallout from November's events in
Paris. With Hong Kong remaining weak, we estimate that the Chinese consumer outside of the Mainland
(c25% of sales) is down at least high single digit YTD. Early Q1 reporting has indicated that Chinese
spending worldwide has been "flattish"(LVMH) to "down" (Burberry) suggesting that Mainland China
(c10% of sales) and other key tourist destinations not captured by Global Blue have not fully
compensated for the above loss of tourist sales.
* Q2 could see further pressure on tourist flows
Last year the peak growth rates y/y of tourists took place between March and August. Currencies played
an important role in stretching luxury price differentials and making regions including Europe relatively
more attractive destinations. Ease of access was also improved by streamlined visa processes and more
direct flights. Fast forward twelve months and the RMB:EUR has depreciated c3% y/y. Security concerns
are top of mind following events in Paris and Brussels. Regional price differentials have been narrowed in
soft luxury and substantially reduced in much of hard luxury. Added to which the comparison base for
global tourism remains very tough in Q2 (+42.7% y/y), albeit below the March level (+47.4%). In our
view all the main indicators point to global tourism remaining under pressure in Q2. Such a scenario
would likely have a greater impact on Q2 trading than Q1 given the greater importance of tourism for
this quarter.
* By destination: Europe (-22.1%) is underperforming Asia (-1.1%)
France saw -29.3% y/y in March (Q1 -21.1%) but all the other main European destinations also saw
declines in March, such as Italy -20.8%, as the comparison base began to toughen substantially. Japan
continues to outperform though even here the growth rate moderated (March +14.1%, Q1 +30.7%).
* By nationality: Chinese tourism spending (ex HK) fell -8.0% in Q1
Chinese spend in March was -26.4% y/y against the major step up in tourist numbers m/m last year. The
US consumer remained strongest (+9.7% in March, +28.7% in Q1); the Middle East consumer was
stable despite the weaker oil price (-0.1%, +8.7% Q1).