Brexit sends tourists flocking to London to ‘buy, buy, buy’
By voting to leave the European Union, Britons have delivered a potential windfall to tourists eager to snatch up Burberry trenchcoats, Harrods Stilton and Liberty scarves on the cheap.
The outcome of last week’s referendum sent the British currency plunging, making the country’s goods and services cheaper for foreign buyers. Consumers reacted immediately: Searches by Chinese for U.K. holidays “skyrocketed” on Ctrip.com International Ltd.’s travel booking app, the company said, while Chinese news site Phoenix implored visitors to London to “Buy, Buy, Buy.”
A slumping pound is a much-needed shot in the arm for U.K. luxury companies as the Chinese are the biggest buyers of high-end goods and make most of their purchases overseas. They made 270,000 trips to the U.K. last year, up 46 percent, according to tourism website VisitBritain. British Airways owner IAG SA said Tuesday that the weaker pound will boost tourist flows to the U.K.
“I wouldn’t be surprised to see Chinese and Middle Eastern tourists flocking to the U.K. as their purchasing value has increased,” said Edouard Meylan, chief executive officer of Swiss watchmaker H. Moser & Cie. “People are ready to travel to get a 5 to 10 to 20 percent discount.”
More visitors to the U.K. would be a boon for British companies such as Burberry Group Plc and Mulberry Group Plc that have struggled amid slowing luxury demand and terror attacks in Europe. The U.K. is the world’s sixth-largest market for luxury spending, at 15.5 billion euros (USD17.2 billion). Britain’s gain could come at the expense of retailers in Japan, casinos in Macau and jewelers in Hong Kong.
Those tourists include Zihao Xie, a 24-year-old from China’s Shandong province, who was shopping for his family at London’s Selfridges department store Monday. He took advantage of the pound’s decline to splurge on luxury items, buying his mother a Burberry trenchcoat and his sister a Coach handbag.
Any short-term fall in the pound will affect the number of visitors to London, said Harrods managing director Michael Ward. But those benefits could take time to materialize as Chinese tourists sort out visas and book hotels, according to Ctrip.com. Some luxury companies may also raise U.K. prices if the pound’s weakness persists. And investors are bearish on what the EU referendum means for the broader sector, as reflected in sliding stock prices for France’s LVMH and Gucci owner Kering SA.
“You only purchase luxury products for one reason: if you’re feeling good about yourself,” HSBC analysts said in a note. The EU referendum “will likely put another layer of doubt on a consumer who already has accumulated many.”
Still, a 10 percent drop in sterling could add as much as 90 million pounds to Burberry’s pretax earnings, according to MainFirst Bank AG analyst John Guy. Burberry gets about 10 percent of its revenue in the U.K., and 60 percent of that comes from tourists, estimates Citigroup analyst Thomas Chauvet.
A surge in tourism to London could hurt Tokyo’s fashionable Ginza shopping district. Chinese visitors to Japan increased 31 percent last month compared with a year earlier, though visits have slowed recently as the yen has strengthened.
Switching travel to the U.K. and Europe from Japan could save Chinese shoppers as much as 40 percent with the currencies’ shift against the yuan, according to Bloomberg Intelligence analyst Michelle Ma. She expects to see changes to the travel pattern of mainland Chinese “straightaway” as it is the middle of their summer holiday season. Bloomberg
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