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Slower Tourist Traffic Adds to Retailers' Woes

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08/16/2019 | 10:19am EDT

By Dave Sebastian

Retailers have seen fewer tourists in their stores this summer with no signs of improvement, piling on to existing challenges like volatile trade policy and geopolitical tensions.

Prolonged trade anxiety, soft global economic activity and a strengthening U.S. dollar could soften travel to and within the U.S, a U.S. Travel Association report said earlier this month. The reading of the Travel Trends Index, the association's metric that tracks direction and pace of travel volume to and within the U.S., was 51.2 in June, up 2.4% compared with the same month last year and its slowest growth since September 2018.

The association said travel will likely moderate through December due to softer growth in domestic travel and stagnant international inbound travel, which has contracted for three of six months in 2019.

International tourists are a major driver of sales in destinations such as New York, Los Angeles and San Francisco, particularly in luxury stores and outlets offering apparel and handbags, according to executives and analysts.

The impact of softer traffic on flagship-store sales could be significant, as it isn't expected to taper off in the next year, Jennifer Redding, a consumer-retail analyst at Wedbush, said in an interview.

"This is not expected to slow down any time soon," Ms. Redding said, adding that "it's not something that turns on and off."

Macy's Inc. (M) Wednesday said its sales from foreign travelers were down 9% for the latest quarter. With such sales down 3.1% in the first quarter compared with a year earlier, the trend is accelerating, said Paula Price, Macy's finance chief, in the company's earnings call. The decline was particularly a hit for the company's Bloomingdale's luxury department-store chain popular among tourists.

"While consumer spending remains healthy, there is significant noise in the macroeconomy- tariffs, currency fluctuations, declining international tourism to name a few," Macy's Chief Executive Jeff Gennette said on an earnings call Wednesday.

Tapestry, which owns handbag and accessory brands like Coach and Kate Spade, cited lower spending from tourists for flat comparable sales in its latest quarter.

Fashion company Ralph Lauren Corp reported a 3% drop in foreign tourist traffic in its latest quarter.

"We continue to clearly see challenges with brick and mortar traffic like both full price and outlets including foreign tourist volatility," Patrice Louvet, president and chief executive of Ralph Lauren, said on an earnings call July 30.

Among the fashion retailers reporting their quarterly earnings next week are Urban Outfitters, L Brands and Nordstrom.

Exacerbating the woes are the decline in lower inbound U.S. travel by Chinese tourists, a major slice of the tourist clientele, and the yuan's depreciation that weakens Chinese currency holders' spending power.

About 689,000 tourists from mainland China visited the U.S. in the second quarter, down from more than 717,000 last year, according to the Commerce Department's National Travel and Tourism Office.

After the Chinese government cut its tariffs on consumer goods last year, Chinese consumers may be more inclined to buy luxury goods in their home market instead of the U.S., Morningstar equity analyst David Swartz said in an interview.

"If the Chinese person wants to buy a Louis Vuitton handbag, they don't necessarily have to go to the U.S. to buy it," Mr. Swartz said.

The tariff cut, coupled with international brands' expansion into China, also ends the heyday for the daigou, a gray-market practice in which Chinese intermediaries buy consumer goods abroad and resell them back home. The Chinese government has also started a crackdown on the practice.

Despite lower traffic from international tourists, retailers still have a major market to rely on: U.S. shoppers. Retail sales, a measure of purchases at stores, restaurants and online, climbed a seasonally adjusted 0.7% in July from a month earlier, the Commerce Department said Thursday.

Write to Dave Sebastian at dave.sebastian@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
L BRANDS 0.11% 18.87 Delayed Quote.-26.49%
MACY'S -1.97% 15.41 Delayed Quote.-48.25%
NORDSTROM 0.00% 32.15 Delayed Quote.-31.02%
RALPH LAUREN CORP -3.00% 92.97 Delayed Quote.-10.14%
TAPESTRY INC -0.51% 25.14 Delayed Quote.-25.51%
URBAN OUTFITTERS, INC. 1.21% 24.21 Delayed Quote.-27.08%
US DOLLAR / CHINESE YUAN RENMINBI (USD/CNY) 0.01% 7.0908 Delayed Quote.3.13%
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EBIT 2020 1 321 M
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P/E ratio 2020 5,39x
P/E ratio 2021 5,82x
EV / Sales2020 0,32x
EV / Sales2021 0,34x
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Jeffrey Gennette Chairman & Chief Executive Officer
Harry A. Lawton President
Robert B. Harrison Chief Operations Officer
Paula A. Price Chief Financial Officer
Naveen Krishna Chief Technology Officer
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