Slower Tourist Traffic Adds to Retailers' Woes
August 16 2019 - 10:33AM
Dow Jones News
By Dave Sebastian
Retailers have seen fewer tourists in their stores this summer
with no signs of improvement, piling on to existing challenges like
volatile trade policy and geopolitical tensions.
Prolonged trade anxiety, soft global economic activity and a
strengthening U.S. dollar could soften travel to and within the
U.S, a U.S. Travel Association report said earlier this month. The
reading of the Travel Trends Index, the association's metric that
tracks direction and pace of travel volume to and within the U.S.,
was 51.2 in June, up 2.4% compared with the same month last year
and its slowest growth since September 2018.
The association said travel will likely moderate through
December due to softer growth in domestic travel and stagnant
international inbound travel, which has contracted for three of six
months in 2019.
International tourists are a major driver of sales in
destinations such as New York, Los Angeles and San Francisco,
particularly in luxury stores and outlets offering apparel and
handbags, according to executives and analysts.
The impact of softer traffic on flagship-store sales could be
significant, as it isn't expected to taper off in the next year,
Jennifer Redding, a consumer-retail analyst at Wedbush, said in an
interview.
"This is not expected to slow down any time soon," Ms. Redding
said, adding that "it's not something that turns on and off."
Macy's Inc. (M) Wednesday said its sales from foreign travelers
were down 9% for the latest quarter. With such sales down 3.1% in
the first quarter compared with a year earlier, the trend is
accelerating, said Paula Price, Macy's finance chief, in the
company's earnings call. The decline was particularly a hit for the
company's Bloomingdale's luxury department-store chain popular
among tourists.
"While consumer spending remains healthy, there is significant
noise in the macroeconomy- tariffs, currency fluctuations,
declining international tourism to name a few," Macy's Chief
Executive Jeff Gennette said on an earnings call Wednesday.
Tapestry Inc. (TPR), which owns handbag and accessory brands
like Coach and Kate Spade, cited lower spending from tourists for
flat comparable sales in its latest quarter.
Fashion company Ralph Lauren Corp. (RL) reported a 3% drop in
foreign tourist traffic in its latest quarter.
"We continue to clearly see challenges with brick and mortar
traffic like both full price and outlets including foreign tourist
volatility," Patrice Louvet, president and chief executive of Ralph
Lauren, said on an earnings call July 30.
Among the fashion retailers reporting their quarterly earnings
next week are Urban Outfitters Inc. (URBN), L Brands Inc. (LB) and
Nordstrom Inc. (JWN).
Exacerbating the woes are the decline in lower inbound U.S.
travel by Chinese tourists, a major slice of the tourist clientele,
and the yuan's depreciation that weakens Chinese currency holders'
spending power.
About 689,000 tourists from mainland China visited the U.S. in
the second quarter, down from more than 717,000 last year,
according to the Commerce Department's National Travel and Tourism
Office.
After the Chinese government cut its tariffs on consumer goods
last year, Chinese consumers may be more inclined to buy luxury
goods in their home market instead of the U.S., Morningstar equity
analyst David Swartz said in an interview.
"If the Chinese person wants to buy a Louis Vuitton handbag,
they don't necessarily have to go to the U.S. to buy it," Mr.
Swartz said.
The tariff cut, coupled with international brands' expansion
into China, also ends the heyday for the daigou, a gray-market
practice in which Chinese intermediaries buy consumer goods abroad
and resell them back home. The Chinese government has also started
a crackdown on the practice.
Despite lower traffic from international tourists, retailers
still have a major market to rely on: U.S. shoppers. Retail sales,
a measure of purchases at stores, restaurants and online, climbed a
seasonally adjusted 0.7% in July from a month earlier, the Commerce
Department said Thursday.
Write to Dave Sebastian at dave.sebastian@wsj.com
(END) Dow Jones Newswires
August 16, 2019 10:18 ET (14:18 GMT)
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