What fewer tourists mean for Europe’s luxury retail

Like Europe’s hotel sector, luxury retail is feeling the pinch as visitor numbers to its major cities hit record lows

19 août 2020

Europe’s big shopping destinations, from Milan’s Galleria Vittorio Emanuele II to Galeries Lafayette in Paris and London’s Harrods, are lamenting the loss of overseas shoppers.

With many high-end hotel rooms still lying empty, the usual summer crowds of affluent, high-spending tourists in Europe’s capitals are noticeably absent.

In London, overall hotel occupancy is down 74.8 percent year-on-year, with July the lowest month on record, according to data from STR. Just 30 percent of luxury hotels in Paris are open, rising to 45 percent in London and 65 percent in Milan.

Furthermore, some high-end major European hotels are still unable to justify reopening, explains Jessica Jahns, head of EMEA hotels & hospitality research at JLL.

“While there have been some signs of increased travel within Europe by Europeans, as well as staycations, the absence of Asian and American tourists is being felt across the region, but notably in popular major cities,” Jahns says. “Occupancy has been a big question mark - but how many are actually open at all is the bigger issue right now.”

A new retail reality

Fewer tourists translate to a somber picture in Europe’s well-heeled shopping areas. Footfall in London’s West End is down by around 70 percent, according to the latest data from New West End Company, while UK luxury sector organization, Walpole, estimates that high-end stores are achieving between just five and 10 percent of sales volumes in the capital. Outside London, visitor numbers fell by as much as 85 percent in February at designer outlet, Bicester Village, normally hugely popular with Asian tourists.

In Paris, high-end department store Galeries Lafayette’s Boulevard Haussmann store would usually get more than half of its revenue from foreigners.

Meanwhile, global sales at the LVMH group, which owns luxury brands including Dior, Fendi and Givenchy, fell by 38 percent to $9.2 billion in the second quarter of 2020. The group’s revamp of the former Samaritaine department store, aimed at luxury shoppers, has been delayed until next year.

“Much of luxury retail is feeling the effect, with both major department stores and brands reporting falling sales figures,” says Ben Binns, EMEA retail director at JLL. “The return of overseas visitors, whenever that may be, will be a huge improvement and for now, the focus has been online.”

While some high-end brand owners like LVMH and Kering are ramping up their e-commerce strategies, there are nevertheless some luxury sub-sectors bucking the trend, he adds, pointing to the promising sales figures reported by Watches of Switzerland in the UK.

Closer to home

The coronavirus-induced gloom has further to go. Globally, the number of international tourists will fall by as much as 80 percent for 2020, according to The United Nations World Tourism Organization. Meanwhile, global luxury sales across the world could this year fall by 29.2 percent, according to the Boston Consulting Group.

For now, many retailers have turned to government support and are seeking to boost domestic spend, as well as negotiate rents with landlords.

“It’s a valid attempt to see high-end retailers through some difficult months ahead,” Binns says. “But it’s early to say if domestic spend – as well as those wealthy high net worth individuals who have semi-permanent presence in Europe’s capitals – will be enough.”

There could also be more consolidation among major luxury brands, Binns believes. “Those that are already well-capitalized could well decide to pursue M&A.”

What retailers are really holding out for, however, is the return of overseas tourists. Before COVID-19, two-thirds of Chinese luxury purchases were made overseas, according to consultancy Bain & Co, either through in-person shopping sprees or buy-on-behalf ‘daigou’ reselling platforms for sought-after goods from boutiques in Europe or the US.

In 2019, a record 883,000 visits came from China, according to VisitBritain and the International Passenger Survey. Both Saudi Arabia and Qatar reported double-digit year-on-year growth in visits to the UK, with Qatar setting records in both visits and spend.

While the medium-term remains uncertain, the longer-term appetite for Europe’s luxury retail remains strong.

“Europe has always offered that prestige,” says Binns. “A customer from Asia will be proud to say that their purchase was made at the Paris, London or Milan store. “It’s part of what makes them incredibly resilient locations. Sustaining that resilience won’t be a problem.”

Global travel has never been so important, he adds. “When it returns, it will mean some significant pent-up spending by luxury consumers.”