US retailers’ lament: where are all the Chinese tourists?
Corporate America cheered President Donald Trump’s decision this week to delay tariffs on another round of imports from China, yet tension between the White House and Beijing is also disrupting a different kind of valuable arrival into the US. Tens of thousands of Chinese tourists are shunning the country as a holiday destination, and companies from Tiffany to Hyatt Hotels are counting the cost.
Tourists from China hold special appeal for US business because of how much they spend. Including the costs of flights and accommodation each one splurges on average $7,000 per visit, according to data cited by the US Travel Association.
After several years of double-digit growth, however, Chinese visitor numbers rose only 4 per cent in 2017 and last year they declined for the first time since 2003. There were 2.99m arrivals in 2018, a drop of 6 per cent from the previous year. The weakness is continuing this summer, according to leading US business executives, who say the slowdown is weighing on profits.
“It’s a significant worry, given China has represented so much of the growth in international tourism over the past decade,” said Adam Sacks, president of Tourism Economics.
Macy’s this week blamed, in part, a 9 per cent drop in sales from international tourists for an unexpectedly weak second quarter that prompted the department store chain to warn on full-year profits.
Jeffrey Gennette, the company’s chief executive, said overseas visitors were an important contributor in popular destinations such as New York, where the company has its flagship Macy’s store on Herald Square and Bloomingdale’s on 59th Street.
The fall-off was a particular problem, he said, since sales to tourists were very high-margin. “They’re more apt to buy at full price, and there’s virtually no returns,” he said.
Tapestry, owner of Kate Spade and a portfolio of other brands, pointed to “pressure from lower tourist spend” in North America at its luxury leather goods chain Coach in disappointing second-quarter earnings that drove the shares down 22 per cent on Thursday.
Victor Luis, Tapestry chief executive, cited “ongoing volatility” in the Daigou trade. China has been cracking down on buying by agents who source goods abroad for lower prices than those offered at home.
Several additional factors explained the slowdown, analysts said, from more restrictive visa issuance by Washington to the wider fallout from the trade war. “[The] Chinese don’t feel so welcome any more,” said Wolfgang Georg Arlt, founder and director of the China Outbound Tourism Institute.
A travel advisory from Beijing earlier in the summer warned of the risk of “shootings, robberies and theft” in the US and potential for “harassment” from local law enforcement. Mr Sacks of Tourism Economics said he had heard such warnings were spurring cancellations among student and tour groups.
Crossing the Pacific has also become considerably more expensive after a drop in the value of the renminbi, which Beijing allowed this month to rise above the seven-per-dollar level for the first time in over a decade.
Standing with family members outside Tiffany, the luxury jeweller, on Manhattan’s Fifth Avenue, a professor who splits his time between the US and China, said that the currency’s depreciation had “definitely impacted” his family’s spending on their visit. It even prompted a member of his party to reconsider the purchase of an Omega watch.
“There’s no longer any advantage to buying things here,” the man said. “[One] might as well just go to Hong Kong and buy it there.”
While Chinese nationals accounted for fewer than 8 per cent of overseas visitors to the US in 2018 compared with almost 12 per cent who came from the UK, according to the National Travel and Tourism Office, they contributed more to the US economy than those from any other country.
Tiffany generates a “double digit” percentage of sales at its US retail business from foreign tourists and these revenues dropped about 25 per cent in its first quarter from a year ago. The company, whose shares have fallen 11 per cent in the past six months, said the decline from Chinese tourists was even steeper.
A broader slowdown is also contributing to the decline in tourists. Mark Hoplamazian, chief executive of Hyatt Hotels, told analysts earlier this month that economic conditions in China had weighed on demand, along with trade tensions with the US.
European-listed luxury brands have noted the trend, too. Jean-Marc Duplaix, chief financial officer of Gucci-owner Kering, said earlier in the summer that while sales to Chinese visitors had contributed to a “solid” performance in western Europe, “weak inbound tourism” contributed to a more challenging period in North America.
Other retailers that have been hit include newsagent chain Hudson, which manages 1,000 outlets with a focus on airports, stations and hotels. Presenting second-quarter earnings, Roger Fordyce, chief executive, blamed a slowdown in Chinese tourists for a 5.4 per cent decline in like-for-like duty-free sales. The company was facing “uphill battles in replacing that”, he said.
At Macy’s, in the 40 or so stores that were most affected by the slowdown, Mr Gennette said the company was trying to find ways to encourage more visits from domestic tourists and local customers. “We’re really focused in these 40 stores on what we can do to offset that” decline in business from Chinese tourists, he said.
Other executives said they were holding off on changes to their strategy, however. “It’s important that one doesn’t just pull back because of any sort of short-term blip,” said Glenn Fogel, chief executive of Booking Holdings, the company behind Kayak and Priceline. “China is a great opportunity for the long run.”