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Americans could further boost to TFS recovery in 2017

US shoppers accounted for the third largest share of global Tax Free Shopping (TFS) spend in 2016 and offered a relatively positive story for the TFS industry last year. Following the results from the US election in November, the industry waits to understand how any shift in domestic policy might affect American spending power overseas in 2017.

Amid the recovery in globe shopper spending experienced in the last quarter of 2016, US travellers could emerge as a further driver of growth for the luxury industry this year. We look back at the performance of this globe shopper nationality over the last 12 months and reflect on its potential in 2017.

Europe still favoured by Americans, despite terror threats

Globally, Europe retained the lion’s share of American TFS, with 89% of total spend throughout 2016. However, a number of factors, including security concerns following Europe’s terrorist attacks and a relatively unfavorable EUR/USD exchange rate, impacted growth within the Eurozone last year. During 2016, year on year (YoY) sales in store growth fell by -8% within the Eurozone, while non-Eurozone sales grew by +28%.

In France and Italy, the two largest markets for US globe shoppers, performance slowed during 2016, with YoY sales growth of -11% and -9% respectively. While this was higher than the global average for these markets last year (-18% and -15%), it did impact the Eurozone’s performance.

However, US performance picked up in these key markets towards the end of the year, with France posting an impressive +38% month to date growth in December due to a softening euro and a low base for comparison in 2015. Italy also showed improvement and while still not showing positive growth during December (-2% month to date), results points to a stronger performance in 2017.

The United Kingdom continues to enjoy a boost from US shoppers

While Italy and France remain the top destinations for US shoppers (28% and 24% share of 2016 sales in store respectively), the UK (15% share of sales in store) represented the greatest growth opportunity for European Tax Free Shopping in 2016.

The UK has always been a popular Tax Free Shopping destination for American globe shoppers and last summer’s post-Brexit drop in the British pound against the dollar has made it even more attractive. In 2016, UK sales from US shoppers grew by +38% YoY due to this increased purchasing power.

While the UK continues to offer hugely attractive FX rates for US tourists, the continuation of the momentum in late 2016 will depend on whether retailers operating in the UK, adjust their current, low prices to compensate for the weak pound.

Asian growth slows in 2016

Representing only 11% of American global TFS spend, Asia experienced negative growth throughout much of 2016. With the Japanese Yen remaining strong against the US dollar for much of 2016, the spending power of American globe shoppers was significantly reduced, impacting both spend and visits. With Japan the most visited Asian destination for US globe shoppers by some margin, this substantially impacted regional growth figures.

Domestic economic and impact on travel

Donald Trump’s election victory had an immediate effect on stock and currency markets in the US, but the impact on US consumers’ travel and spending power, both domestically and internationally is harder to predict.

American international travel trends are largely dictated by domestic economic conditions. While a weaker dollar has the potential to hurt outbound tourism, should the currency strengthen, US travellers could then enjoy significantly higher spending power abroad. It is still not clear what change the new administration will bring, but several factors point to positive conditions for the US economy.

2017 forecast

With analysts predicting a rise in GDP over the next 12 months, US shoppers can expect to enjoy a boost to their household budgets. This increased spending power, combined with  proposed tax cuts and the predicted strengthening of the USD vs the EUR and GBP, could create highly favourable  conditions for Americans to travel and spend abroad.

A report from Choice Hotels paints a positive picture, revealing Americans will increase travel spending in 2017, with personal travel budgets up +42%. The report also suggests that 28% of Americans are planning to visit Europe next year, with Paris (21%), London (20%) and Rome (18%) the top destinations. This view is supported by US travel experts AAA, which reports that Americans will travel more this year. Their study claims that 42% of Americans plan to travel to warm-weather destinations, both in the US and abroad.

New air routes

A number of European airline operators will open new routes to the US in 2017, providing boost for the luxury industry. Virgin Atlantic is backing a surge in US travellers to Europe, increasing transatlantic routes from March, when the airline will operate flights from Manchester to Boston and San Francisco. During May, it will also start flying from London Heathrow to Seattle-Tacoma.

Several European low-cost carriers are also upping their flights to the US in 2017. Norwegian Air will begin operating super low-cost flights to New York from Edinburgh in Scotland, and Cork and Shannon in Ireland.  During May, Condor will launch the only non-stop airline service between New Orleans and Frankfurt, Germany, with its convenient connections to more than 120 European destinations


Global Blue takeouts

US shoppers accounted for the third largest global share of TFS spend in 2016, behind China and Russia. 

• Rising domestic GDP, proposed tax cuts and the strengthening of the USD vs the EUR and GBP, could create favourable conditions for US shoppers to travel and spend abroad.

• The UK continues to benefit from US tourists taking advantage of favourable exchange rates post-Brexit.

• Europe remained the primary beneficiary of US TFS spend in 2016, accounting for 89% of total sales in store.