Where have all the tourists gone?
They’re booking hotels, dining in restaurants, and taking in Broadway shows and Disney parks in record numbers, but for retailers in America’s gateway cities, they’re MIA.
Roughly 5 percent of Macy’s annual sales come from international tourists and that business was down double digits last quarter, accounting for a 1 percent drop in the company’s total revenues. Macy’s flagships in New York, Los Angeles and Chicago have been most affected.
Bloomingdale’s 59th Street flagship, where sources say more than 20 percent of revenues is generated by international and domestic tourists, has also seen a decline in customers from abroad.
“All business owners in the United States are being impacted by a reduction of European tourists, a reduction of shopping and a reduction of spending due to the strength of the dollar,” said Richard Baker, governor and executive chairman of the Hudson’s Bay Company, which operates Saks Fifth Avenue and Lord & Taylor in the U.S. and Hudson’s Bay in Canada.
“We’re missing our ladies from Barcelona this year,” lamented one president of an upscale specialty chain. “Every year, a group of five or six from Barcelona show up at our store with empty suitcases. We’re their first stop right from the airport. We love them. They would load things up in their suitcases to take things back with them — blouses, shirts, men’s, and women’s. All types of merchandise. But we haven’t seen them yet.”
“While it’s a terrific time for Americans to book their summer abroad travel plans and capitalize on the value of their strong dollar on Europe’s most fashionable streets, the opposite is true for international tourists coming to the U.S. and coupled with the instability of a few major economies — Brazil and Russia in particular — the tourist spend is inevitably impacted,” said Matthew Whitman Lazenby, president and chief executive officer of Whitman Family Development LLC, and operating partner of Bal Harbour Shops in Miami, which has Neiman Marcus and Saks as anchors.
“The impact from the decline in spending by tourists is uneven across the country. Florida is somewhat more impacted than California,” said Bill Taubman, chief operating officer of Taubman Centers Inc.
“The absolute numbers in Miami are high, though there is no question everyone there is 10 to 15 percent off,” said one source close to retailers in the area. “California is fine. Asians are coming and spending money. The biggest recipients of Chinese business are by far Los Angeles and San Francisco, then the Chinese visit Washington and New York. In Houston, the downturn in the oil business is not going to have the huge impact that it would have 20 years ago because the city is pretty diversified now, though if you look at the New York City area, you can be assured that Woodbury Common is off.”
Woodbury Common Premium Outlets, a huge center in Central Valley, N.Y., runs buses from Manhattan filled with visitors from abroad.
New York City draws more tourists than any other city in the country, followed by Miami, Los Angeles, Orlando, San Francisco and Las Vegas.
“The American luxury customer is fine — it is the foreign visitors that have lost their spending power, depressing sales in stores,” said retail analyst Walter Loeb. “The Europeans are hurting because the euro no longer gives them a hefty discount when they make purchases in dollars. The Japanese have cut back their travels to the United States. The Russians are not visiting despite the fact that some own big apartments in New York City. The Saudis are shopping in Europe. The Chinese are feeling the effect of a slower growth economy. The list goes on.
“The bottom line is that major stores like Bloomingdale’s, Saks Fifth Avenue, Louis Vuitton, Fendi, Versace and even Ralph Lauren are feeling the negative effect of weak currencies worldwide on foreign tourist traffic in their stores.” he added. “More likely customers trade down for Old Navy from Macy’s. I think it’s a long-term trend. Retailers have to adjust to the new realities. They have got to seek suppliers that give them lower prices and attractive merchandising.”
Retailers covet tourists. They know they’re not ordinary shoppers. Vacationing puts them in a heightened spending mood, to shop for themselves and for friends and family at home. Return rates are lower among tourists since what they bring home is harder to ship back. They’re also loyal to stores and brands that don’t exist in their native countries.
“Once tourists shop with us, they almost always come back on their next trip,” said Susan Davidson, ceo of Scoop.
But spending shifts seen during the last year are disappointing, particularly since tourist traffic is on the rise, and ticket sales to Broadway shows and other entertainment venues are robust. The 2014-15 Broadway season, ending in May, grossed a record $1.37 billion, up 7.6 percent from the year before. Global tourism spending was up 42.6 percent year-on-year last June, according to a Barclays report based on Global Blue’s latest figures. Chinese tourist spending was up 87.8 percent in the period, while that of Russia declined 17.9 percent.
“It’s interesting people are willing to pay $145 for an orchestra seat at a musical, go out for dinner and not shop as much, and the fact that Disney parks are incredibly strong speaks to what customers are spending on — experiences and being entertained — and that’s what stores are not providing to the same degree,” said Michael Gould, the former chairman and ceo of Bloomingdale’s. “People come to New York and want to see ‘Kinky Boots’ and ‘The Book of Mormon,’ things you can’t get elsewhere.”
“Tourism from most countries to the United States will still be up in 2015 in terms of body count,” said Mark Brown, an economist with the U.S. Department of Commerce. “Overall, we expect 2015 to be nearly 4 percent higher than last year.”
In a rundown of tourism trends this year, by country, Brown said he expects Canada to be “very soft, flat to maybe up one percent. They are one country very strongly linked to the exchange rate.”
Canada sends more tourists to the U.S. than any other country, with 23.2 million expected this year versus 23 million last year, according to the Department of Commerce. Mexico is the second-largest supplier of tourists, with an estimated 18.7 million coming this year, compared to 17.3 million last year.
Despite the euro’s decline, “Germans are still coming,” Brown said, with 1.96 million Germans seen traveling to the U.S. this year, close to last year’s level. The U.K. trend is also up, with 4.13 million visitors expected this year compared to 3.97 million last year.
However Japan will be down to about 3.4 million from over 3.5 million last year, with the yen down against the dollar. Traffic from Russia will also be down, though the ruble’s volatility has eased since earlier this year.
On the other hand, China grew 21 percent in traffic last year to 2.18 million visitors, and should show similar growth this year, to 2.62 million. Last year, Chinese tourists spent $23.8 billion in the U.S., second only to Canadian tourists, who spent a total of $27.2 billion, according to government statistics.
“Chinese consumers are driving the growth in luxury and other goods worldwide, with travel an essential component of a luxury lifestyle,” said Carolyn Feimster, owner and president of CJF Marketing International, which develops programs and strategies to spur tourism for stores, shopping centers and cities.
Feimster cited research indicating wealthy Chinese take three international trips a year, with 33 percent of the billionaires taking more than five annual international trips. They love to shop the outlets, primarily for clothes, jewelry, watches, cosmetics, and the U.S. is the second most-preferred destination for the Chinese, with France ranked first. Recently, Chinese tourism in Japan has driven sales of luxury groups like Kering, Hermes and LVMH Moet Hennessy Louis Vuitton, which conversely have seen a slowdown in growth in China itself.
From Brazil, there should be a 5 percent increase in tourist traffic in the U.S. this year, despite Brazil being close to recession. “That probably is a great example where travelers may show up but spending is a little bit more subdued than in the past,” Brown said.
“Maybe there’s softness [in tourism overall] for a year or two but the long-term outlook is still strong,” he said. “There’s growth in the world population and it’s populations that have financial means to travel. A lot of that is out of Asia. It’s where middle class growth is coming from. Global travel is going to be a growth industry for a long time.”
The government projects international tourism to the U.S. to soar by 2020, from this year’s estimated 77.6 million to 96.4 million. The administration’s visa waiver program and efforts to reduce wait times on getting visas have made entry into the U.S. easier. In the last seven years, visas were waived for South Korea, Czech Republic, Greece, Hungary, Lebanon, Lithuania, Malta, Ethiopia, Malta, Chile and Taiwan. Despite what big city retailers are seeing, the Department of Commerce still ranks shopping as the number-one activity of tourists when they come to the U.S., followed in order by sightseeing, fine dining, theme parks, museums and national parks and monuments.
Fortunately, the attitude toward traveling remains universally positive, despite politics, security and currency issues. “Is it a luxury? Yes. Is it a luxury people from the U.S. and abroad feel they must have? Yes,” Brown said, even though they may be adjusting their destinations, their length of stay, and their travel budgets.
“I was just in Brazil a couple of months ago and in speaking with a number of tour operators they were saying that future U.S bookings looked very positive,” said Feimster of CJF Marketing International. “Many people, such as the Brazilians, feel it is their right to travel and no matter how bad their economy is, or how crazy their political situation becomes, they will still travel to the U.S. and shop.”
Feimster creates VIP welcome packets with store offers, welcome letters, directories, histories of shopping centers and the cities or areas they’re in, area attractions, walking maps, and gifts. “We also ask our merchants to add some type of experience in their store, such as a luggage store offering a packing demonstration,” she said. “Today’s traveler seeks more than just shopping for a product — they want an ‘experience.'” She also develops commissionable shopping packages for the travel trade to sell to tourists, which provide information, and discounts for shopping, eating, tours at destinations such as Boston’s Faneuil Hall.
Some retailers are working closer with hotels, to make shopping easier and provide concierge services and free deliveries to guests. Gap, for example, just began testing a free delivery service for guests at the new Virgin Hotels Chicago, which opened last January.
“Retailers need to become more aggressive in their marketing efforts, with better incentives to entice more spending,” Feimster said. “The visitor has more time while on vacation. They are much more relaxed and therefore can be incentivized to shop. Plus, they still need to bring back gifts for the family, the baby-sitter, dog sitter, office folks, etc. And they want to bring back mementos of the trip for themselves.”