Global Tax Free Shopping (TFS) spend remains negative again in April with both Europe and Asia showing double digit slowdown – signalling the global luxury slowdown is taking hold
Global Blue’s April transactions data is very negative again for the second consecutive month and, with both Europe and Asia regional sales performances down year-on-year (YoY) at -16% and -10% respectively, this month’s figures are against a tough comparison with April 2015, which saw stellar performances of +40% for Europe and +92% for Asia YoY.
However, TFS is a cyclical business and, while 2015’s overall sales growth marked a seismic shift for the luxury industry, it’s worth noting that transactions so far in 2016 remain robust. Global Blue remains cautiously optimistic: we expect a challenging H1 followed by a more positive outlook for H2, if pockets of spending growth and favourable FX rates continue for key globe shoppers such as those from the Middle East and the US.
While tax-free sales in Asia have now followed Europe’s decline, the region is showing some resilience with growing transactions remaining a positive factor here. Across Asia, the number of transactions increased +15% YoY, driven by the Chinese, up +19% in Japan and 11% in South Korea. South Korea was the only country to post positive sales, with +3% for April (against a tough comparison of +57% YoY for 2015), driven by Japanese TFS spending up +19% this month.
Europe’s negative outlook
Europe’s deepening decline looks to have taken hold, with the region posting a tax-free sales drop of -16% for April YoY vs -22% for March. France (-23%) and Germany (-20%) are the worst affected again this month, while Italy (-8%) and Spain (-7%) are also down. By comparison, the UK has fared better, posting only -1% decline for April. This is an indication that the slightly weaker euro vs the British pound (FX shows the euro is down against the pound by -1.76% during April) has not deterred American tourists, who posted +13% growth in TFS spending in the UK this month, despite the challenging landscape of reduced tourism numbers due to continued terrorism concerns in Europe.
Regionally, Europe is still the biggest attraction for globe shoppers, with Americans posting +6% growth in the region, offsetting the steep continuing decline of Chinese. In the UK, Americans are up +13% vs the Chinese who are down -18%. For France and Germany, both countries continue to see negative sales from the Chinese of -27% and -30% respectively, while the Americans produce a similar performance of -22% and -23% respectively.
Luxury brands report tough times in Q1
Global Blue’s latest data is in line with recent trading statements from luxury groups Richemont and Burberry, which both reported declining full-year sales to March 2016, in May.
Richemont’s operating profit fell to 2.06 billion euros in the 12 months to March, the Geneva-based company reported on 20 May. The figure missed the average analyst estimate of 2.29 billion euros. ‘In the near term, we are doubtful that any meaningful improvement in the trading environment is to be expected,’ said Richemont group chairman Johann Rupert in a statement that revealed sales had plunged -18% in April. ‘Challenging comparatives will persist through September,’ reported Bloomberg.
British luxury brand Burberry also reported a fall in full-year profits and said it expects the ‘challenging environment for the luxury sector to continue’. For the year to the end of March, Burberry’s pre-tax profits fell to 415.6m pounds (537m euros) from 444.6m (574.5m euros) in 2015, a fall of -7%, reported the Financial Times. The brand cited the slowdown in Chinese demand as its biggest concern, according to a BBC report, with overall like-for-like sales down -1% – if Hong Kong and Macau were excluded, sales would have been up +3%.
Economic downturn fosters luxury industry innovation
Amid slowing demand for luxury goods and changing consumer shopping behaviour, the luxury goods industry across Europe, the Americas and APAC has recognised that the current climate is likely to remain challenging for the remainder of 2016.
While luxury sales growth slowed to just 1% to 2% in 2015, according to a global study by Bain & Co, some luxury brands have been ‘in denial’ about the ‘reset’ of the luxury goods industry, according to Thomas Chauvet, a luxury analyst at Citigroup. ‘In 2015 and at the start of 2016, they have realised it is a different story,’ Chauvet told the Financial Times. As a result, they are adjusting to the new normal with a variety of sales tactics.
VIP concierge services, pop-up stores and art installations are among those innovation strategies, designed to blur the lines between shopping and entertainment and, crucially, attract those luxury customers who are still spending: millennials. The members of this group are also the biggest advocates of social and e-commerce, which happens to be seeing ‘bullish growth’ even for luxury brands, according to Bain, which estimates e-commerce grew to 7% in 2015 and signals a positive tailwind for the industry in the coming months.
Global Blue takeouts:
• Q1 was the beginning of a new era for Global Blue with March being the month that saw the largest global TFS spending decline since 2012.
• This month’s global spending drop is now affecting Asia as well as Europe, and while transactions remain positive in Asia, the overall picture is set against a tough comparison to 2015.
• Tourists are still put off travelling to Europe after the terrorist attacks in Paris and Brussels, and the introduction of biometric passports is having a prolonged impact on visitor numbers to the region.
China’s recent stricter tax laws, which were imposed at the beginning of April to crack down on daigou imports, are also negatively affecting Chinese globe shopper spending.
Global Blue corporate data reporting includes Tax Free Shopping (TFS) transactions from our key TFS destination markets across EMEA, Asia and Americas, where more than 24 months of back data is available. Global Blue data points referenced within our corporate content may vary from other third party reports that publish our data, due to different parameters set by these third parties.