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Travel spending has vanished across Europe

A Burberry display is pictured at Selfridges department store, amid the spread of the coronavirus disease (COVID-19) in Oxford Street in London, Britain June 14, 2020
REUTERS/Hannah McKay
A tourist-free zone these days.
By Marc Bain
Published Last updated This article is more than 2 years old.

Around April in a normal year, tourists begin flocking to Europe before reaching peak numbers in the early summer months, bringing with them an appetite to spend that’s critical to the region’s business ecosystem. But 2020 has not been a normal year.

Because of health concerns over Covid-19 and related travel restrictions, tourist spending in Europe was down about 99% in April and May compared to last year, as measured by the value-added tax (VAT) refunds processed by Planet Payment. VAT is levied on consumption of goods and services in countries around Europe. Travelers, however, are eligible to have the tax refunded on goods they take home with them, which is what agencies such as Planet specialize in facilitating, giving it a clear view of how much tourists are buying. In June, when peak season is typically getting underway, tourist spending was still 98% below its level last year based on Planet’s data.

For some businesses, it’s been exceptionally bad news.

Aside from obviously tourist-dependent businesses such as hotels, a number of retailers are feeling the effects. Among them are high-street fashion chains, luxury boutiques, watch and jewelry shops, and department stores such as France’s Printemps and Selfridges in the UK, says Vinod Paul, Planet’s head of business and market intelligence.

Luxury in particular is heavily reliant on traveling shoppers. “For many of these European stores—they all vary—but half of their sales could attributable to tourism sales,” Paul says.

Burberry, for one, has been hammered. “It’s around about half of our business,” Julie Brown, the company’s CFO, said about Burberry’s sales to tourists on a July 15 call with investors and analysts. “We found significant drops in the tourist business in Europe in the order of 90%.”

LVMH, recognized as one of the most resilient groups in luxury, said on a call with investors today that the drop in tourism to Europe had put pressure on its business there. Other luxury players are likely to report steep declines from declines in tourism.

Chinese shoppers are especially high spenders. They’re the world’s top buyers of luxury goods, and some 66% to 70% of their spending takes place outside China, depending on the estimate. Roughly a quarter of that happens in Europe, financial firm UBS said in a July 16 research note, in part because luxury merchandise there can be much cheaper than at home. But Planet data cited by UBS found Chinese tourist spending fell 98.8% in June versus 2019.

Tourists from South Korea and Japan also spend a significant amount outside their borders, as detailed in a note today from investment firm Bernstein. It said traveling shoppers account for about 40% of all luxury sales, and Europe, it added, was the “elite” traveler’s top destination for shopping abroad.

Retail sales overall in Europe have begun to rebound from the worst effects of the pandemic. But it’s likely travelers, and their spending, won’t be back to pre-pandemic levels for quite some time. Even Europeans who are buying again are doing more of their shopping close to home now.

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