Pret-a-Reporter

Fewer Asian Tourists in Europe Lead to Decline in Luxury Spending

Pietro D'aprano/Getty Images
Prada fall 2016 presentation

The past six months have been rough on luxury retailers as tourism was suppressed by fears of terrorism. However, experts believe that things will pickup in the second half of the year if Asian travel sees an uptick.

Burberry. Prada. Bottega Veneta.

In the past few weeks, these luxury brands have numbered among several companies that are making headlines by proposing strategies (including focusing digital growth and simplifying product offerings) that they hope will turn falling sales right side up. (Burberry's first quarter sales were down ten percent and both Prada and Bottega Veneta saw sales decline eight percent.) But despite their best efforts, the only solution may be to simply weather the storm that is a market in decline.

Corinna Freedman, an analyst at BB&T Capital Markets, notes that diminished sales have more to do with a larger, downward trend in luxury fashion than any missteps on the part of brands. “I think largely, it’s macro-driven,” Freedman told Pret-a-Reporter over the phone. “There’s been a huge pullback in tourism, so that’s really hurt the luxury brands the most because the dollar is so strong.” She adds that uncertainty caused by U.K.’s Brexit, a general “malaise of fashion trends” and world-wide cold-weather issues delaying spring purchases have also contributed to the industry’s stagnation.

“Now that the dollar is so strong — and that’s bringing up the euro a bit — the perception is that [European luxury] goods are not as inexpensive as they once were to the Chinese consumer,” she noted of the decline in tourist purchases.

Add to this decreased spending the fact that travel to Europe has actually declined — both among American and Asian tourists — and the situation becomes compounded.

“We have seen a fairly precipitous decline in search interest for flights to Europe from the US — down about 35% year-over-year,” Patrick Surry, chief data scientist of travel advisory company Hopper Research told Pret-a-Reporter via email, adding that the terror attacks in Paris last November as well as in Brussels in March have stifled travelers’ European wanderlust.

Says Surry, “There certainly does seem to be strong evidence that all the bad press Europe's been getting — terror attacks, economic crisis, migrant crisis, recent US state department warning — has had a big impact on US travelers’ decision to visit Europe." 

And travel warnings from by the U.S. certainly aren’t helping. Just last week, the U.S. State Department issued a travel alert cautioning U.S. citizens against traveling to Europe, citing the risk of potential terrorist attacks “targeting major events, tourist sites, restaurants, commercial centers and transportation.” The alert is in effect through August 31.

One of the biggest concerns of the luxury fashion market, however, remains the decline of Asian travelers specifically to Europe over the past six months — a trend that Henry Harteveldt, travel analyst and founder of advisory firm Atmosphere Research, believes is directly related to the recent instances of terrorism.

"Chinese travelers are very concerned about personal safety and security, so they want to go to destinations that are going to be safe," he told Pret-a-Reporter over the phone, crediting attacks for the 3.1 percent decline in Asian travelers in Paris. Instead of the City of Light, he also notes that travelers have shifted their itineraries, with destinations such as Iceland and the Maldives seeing an uptick in Chinese tourism. 

"What we are seeing is a short-term challenge unless we see more terrorist attacks in Europe," added Harteveldt. "Assuming we don’t, and assuming that there are no major problems in China, I think that the second half of the year will likely see some pickup with Chinese travelers going to Europe. And no doubt 2017, again, assuming there are no aberrations, will probably be a better year for Chinese travel to Europe than 2016 has been."

In Paris, at least, the government did try to alleviate some of the fear by instituting an exchange program in which Chinese police officers were stationed throughout the city in order to make tourists feel more at ease. The program, instituted in 2014, was scrapped shortly thereafter over concerns that the legal systems in China and France differ too much; however, a similar program is reportedly coming to Rome and Milan later this year.

A few brands, however, have managed to keep in the green. Armani and Gucci, for example, have reported gains recently, with much of the latter’s success being attributed to the cult-like following of shaggy-haired creative director Alessandro Michele. However, all in all, Freedman feels that there isn’t a specific strategy that struggling brands can implement to turn things around in the face of this macro trend.

Says Freedman, “I don’t think anyone is safe from this.” 

Both Freedman and Harteveldt are in agreement that things should be turning around in the second half of the year — both for Asian travel in Europe, and as a result, in the luxury market.  

comments powered by Disqus