Tourism spend in July -14.0%; tough early Q3
July Global Blue tourism spend -14% y/y, Q2 -12% y/y, Q1 -6% y/y
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 spending trends. The sector has re-rated and now sits at a 26% premium to the market on the back of more stable than expected Q2 trends. Tourism spend in July (-14.0% y/y) has however remained poor in line with June (-13.7% y/y) despite easier comps (11pt) and Ramadan falling 2 weeks earlier than last year benefitting trends at the start of this month. Chinese spend remained weak impacted by currency, worries on travel post events in Paris, Brussels and Nice as well as increased import restrictions. Company commentary has suggested that trends have rebounded in Mainland China. Korea is the bright spot along with the UK in local currency terms. We await any tangible sign of stabilisation in HK.
Early Q3 still showing weaker trends in Continental Europe
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. Fast forward 12 months and the RMB:EUR has depreciated c8% y/y and regional price differentials have been narrowed in soft luxury and substantially reduced in much of hard luxury.
By destination: Europe (-20%) remained weak but Asia (+9%) improved
In Europe, France (-24% y/y) and Italy (-18% y/y) were the weakest markets. Within Asia the stronger yen is making Japan (-27% y/y in local currency) less attractive than Korea which saw stellar trends (+214% y/y) on the back of an easy comparison base post the impact from the MERS outbreak on travel last year. Burberry, Swatch, Kering and Ferragamo have stated that HK is sequentially improving which we see as likely related to more attractive intra-Asia price gaps. The UK also grew in local currency terms (+6% we estimate) due to the weaker pound.
By nationality: Chinese tourism spending (ex HK) fell -24% in July, -16% YTD
Chinese spend was -24% y/y (June -18%) against the major step up in tourist spend last year. The Japanese consumer saw solid growth (+31%) due to the strengthening yen. US consumers (+11%) were also robust with S.E. Asians also growing (+5%).