January’s weak performance was driven by softer Chinese global spending, which slowed to +11% in January YoY. In particular, Chinese globe shoppers chose the Asia-Pacific (APAC) region over Europe; their TFS spending in APAC countries rose sharply to +42% in January, in contrast to Europe, where their TFS spending decreased by -13% in January – the first time Chinese spend has declined since May 2014. 

 

Chinese economy: slowing luxury demand

January’s news that the Chinese economy had shrunk to a 25-year low of ‘just’ 6.9% growth was widely reported by economic market commentators (for example, CNBC). Some focused on the implications for the luxury industry, notably Goldman Sachs, which forecast worldwide Chinese luxury spending would increase by +6% in 2016, down from +10% in 2015, according to a report in the Financial Times.

However, despite domestic reports that consumer sentiment around salaries was down for Q4 2015, according to a People’s Bank of China report, for the tourism market there is a more positive outlook. According to market research firm Neilson, China’s consumer confidence is 107, well above the global average of 97, reports Jing Daily. Furthermore, Chinese consumers have one of the lowest levels of ‘recessionary sentiment’ at just 29% vs Americans, who are registering 47%.

 

APAC growth

This month Global Blue is seeing double-digit +37% YoY growth in APAC as appetite for shopping tax-free here increases. Japan in particular is a hotspot in the region for growth, due to increased numbers of Chinese visitors, who are attracted by the soft currency and have shifted their tourism plans away from Europe (over terrorist attack concerns) and, longer-term, from Hong Kong.

Japan is now Global Blue’s fourth largest TFS destination, where we have doubled our merchant footprint over the last 12 months. Sales performance in Japan is up +42% for January YoY, boosted by Chinese spending, which was up +87% in Japan this month.

 

Europe declines

Spending in Europe is in decline this month for the first time since the beginning of 2015. January’s overall sales performance here was -3%, driven by declining number of transactions (-7%) and slightly less than flat average spend (-1%). To blame, in particular, is the big slowdown in spending by Chinese globe shoppers. The new biometric visa requirements for Chinese entering Europe is impacting the number of Chinese tourists visiting the region.

All countries in Europe saw a slowdown in TFS growth this month, with France down the most, to -21% in January vs -8% in December. The Paris terrorist attacks are still affecting tourism numbers and TFS performance here. Germany also posted a sizeable decline in spend this month with -17% for January.

However, Spain is looking positive with a +22% TFS sales increase for January. Spain’s robust performance (see separate story on Spain) is being driven by South American and Hispanic nationalities shopping tax-free while they are in Europe.

Despite hopes that recent changes in the visa application process for Chinese entering the UK would boost their spending patterns, TFS sales performance is down further, to -11% for January YoY. But it is early days, says Gordon Clark, Global Blue’s UK country manager, who is looking to February’s sales performance over Chinese New Year to provide a Q1 2016 sales peak.

‘Chinese New Year is still a key period for UK retail, proven by the rise of +72% YoY for the Chinese New Year period in 2015,’ he says. The new two-year visa for Chinese visitors to the UK offers a boosted incentive for globe shoppers to visit the UK this Lunar New Year over Paris or Milan. ‘However, UK brands need to maintain vigilant local pricing strategies in the face of the strong British pound vs the euro.’

Changing Chinese shopping behaviours are in the air; Europe is witnessing a decline from the Chinese, who are swapping Paris for Moscow. Russia’s weak currency is attracting Chinese tourists this Chinese New Year, who are reported to be visiting Moscow for the culture, architecture, winter-scapes and shopping, according to Reuters.  

 

Global Blue takeouts:

  • Global spending on TFS is down to +3%, the weakest performance since August 2014.
  • Asia is a TFS growth hotspot, while Europe is mostly registering negative growth.
  • Spain is a growth hotspot in Europe, driven by increased spending by South American and Hispanic globe shoppers.
  • Chinese globe shoppers are shifting away from Europe and shopping more in Japan and, increasingly, Russia.