Global Tax Free Shopping (TFS) spend has fallen sharply in March with overall sales plummeting to -18% year-on-year (YoY), vs just +2% in February.
Global Blue’s March transactions data represent a four-year low, and with global sales declining -18% YoY this month’s figures are against a tough comparison to March 2015, which saw a stellar performance of +47% YoY. This reflects how the Chinese, Global Blue’s largest globe shopper group, spent more due to favourable exchange rates, and over a slightly later Chinese New Year (CNY) holiday last year.
Chinese New Year 2016 vs 2015
Aggregating both February and March data for the CNY holiday period, the Chinese spend performance YoY shows a stark contrast of -9% decline in 2016 YoY vs +87% growth in 2015. Key geopolitical factors in the interim, such as the new Schengen biometric visa policies, China’s economic slowdown and the threat of terrorist attacks in Europe, are major reasons for the steep drop.
Regionally, Europe is the focal point for a number of negative factors. Overall TFS spending in the region is down -22% for March YoY vs +2% for February; France (-21%) and Germany (-20%) are the worst affected. The UK and Italy are also registering negative growth, albeit at a lesser rate with -7% and -3% declines for March YoY respectively. In line with the CNY holiday performance, this month Chinese spending in France is declining the most with -36% YoY, just lower than Germany with -35% and the UK with -30%. Across Europe, Chinese TFS spending is down -36% YoY, with -21% decline in transactions also reflecting the changing trade winds.
The biggest factor here is the impact of new Schengen visa requirements for Chinese tourists visiting Europe and the backlog of European countries still working on opening enough modern processing centres in China to meet demand for the new biometric visas. This is lasting longer than Global Blue forecasted, and looks likely to continue for the next few months.
Asia ahead of Europe
The result of this shift is that Asia is starting to absorb Europe’s TFS spending as Chinese globe shoppers increasingly prefer to travel and spend closer to home. However, this month’s global decline is also represented in Asia, which posted a -1% drop in sales YoY vs +10% in February. Behind this marginal decline lies an undercurrent of regional strength: Global Blue data shows Chinese spending in Japan grew +21% in March YoY, with transactions here also up +33% and by +32% across the region.
Overall, Q1 2016 closes with just +2% global sales growth YoY vs +25% for Q1 2015 – and the drop points to a corresponding picture for the luxury goods industry looking ahead in 2016.
Luxury industry bellwethers: 2016 is flat
In line with a recent forecast by consulting firm Bain & Co, and the Q1 2016 trading statement from luxury group LVMH, the year ahead looks set to be a challenging one for the luxury industry. ‘Growth in the personal luxury goods market should pick up next year , boosted by resurgent demand in the United States and China, after hitting a trough in 2016,’ Bain & Co predicted, according to a recent Business of Fashion report. It also expected demand in mainland China to improve as price differences with regions such as Europe narrow, and China’s new tax measures and border controls help discourage overseas purchases.
For LVMH, Q1 2016 sales were below forecasts of +2-3% growth and remained flat amid conditions such as weak tourist shopping in France and Hong Kong. ‘Overall, this is not very surprising, as LVMH and LVMH fashion and leather goods are so big that they can be seen as a proxy of the luxury goods sector – and the luxury goods sector is on the back foot,’ Exane BNP Paribas analyst Luca Solca told Reuters.
All is not lost: Chinese have an insatiable appetite for travel
While the current downward trend looks to be continuing for the global luxury industry, and 2016 seems likely to be much slower, Chinese outbound tourism is still powering the travel industry. ‘[Chinese] outbound tourism is growing like crazy,’ David Scowsill, president and chief executive of the WTTC, told the Financial Times at the launch of its latest Economic Impact Report. There were some significant shocks last year, in the stock market and the currency, but it didn’t slow the growth of travel and tourism. Once people have started to travel, they are reluctant to give that up,’ he commented.
Global Blue takeouts:
• Global spending on TFS for March is down to -18% YoY, Global Blue’s lowest performance since we started our rich data analysis in 2012.
• This month’s global spending drop is pronounced in Europe, while Asia is also affected, albeit to a lesser degree, and comes after a stellar 2015, making for a tough comparison.
• Tourists are still put off travelling to Europe after the terrorist attacks in Paris and Brussels, and the introduction of biometric visas is having a prolonged impact on visitor numbers to the region.
• Global Blue’s Asia TFS destinations are absorbing European TFS sales.
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.