Coronavirus Cuts Chinese Tourism, and Luxury Retailers Suffer

Chinese tourists are disappearing from major shopping capitals across the U.S. and Europe as a result of the new coronavirus, and their absence is hurting some of the world’s highest-profile luxury brands.

The outbreak has exposed how dependent high-end retailers in places such as New York, Paris and Milan have become on visitors from China, who often spend more than the typical tourist. Estée Lauder Cos. and Capri Holdings Ltd., CPRI -5.91% which owns the Versace and Jimmy Choo brands, warned investors this week their financial results could suffer due to lower sales to Chinese travelers.

A new Galeries Lafayette store on Boulevard Haussmann in Paris, where there are signs in Chinese and a center where tourists can claim value-added tax refunds, was largely empty this week. Normally, more than 1,000 shoppers a day visit the store, many of them Chinese tourists who arrive by the busload after stopping at sights such as the Louvre, a salesman said.

On Milan’s Via Monte Napoleone, almost every shop has hired a Chinese-speaking sales clerk in recent years-but now tourists from China have virtually disappeared.

“If you think you see a Chinese shopper these days, it’s probably a mirage,” said Giovanni Cammaroto, who works in a Fendi store on the Italian city’s most upscale shopping street. “Until a week ago, we still had large groups of Chinese coming through, but in the last few days it’s been maybe one or two here and there.”

That matters to retailers a lot more than it did in the past. Almost 170 million residents of China traveled outside the country in 2018, the most recent year for which figures are available, according to the U.N. World Tourism Organization, and they spent about $277 billion. That is more than three times the number of travelers and five times the amount of spending as a decade earlier.

Globally, Chinese consumers last year bought nearly $110 billion worth of luxury goods, including clothes, leather goods and jewelry-mostly outside China.

The U.S. economy overall could lose $10.3 billion in Chinese visitor spending due to the outbreak, according to estimates by the research firm Tourism Economics. Chinese represent 7% of all overseas visitors to the U.S., and they spent roughly $34 billion on travel and transportation services in 2019, including spending in the U.S. and on U.S. airlines, the firm said.

“We assume that there will be obviously an important reduction of Chinese travelers-not visiting the U.S.-in the next at least two, three months, and this will have a negative impact, obviously, on the sales to Chinese tourists,” said Fabrizio Freda, the chief executive of Estée Lauder.

The company on Thursday nudged down its full-year financial outlook to account for the effects the coronavirus will have on its business.

Capri, whose brands also include Michael Kors, said on Wednesday that prolonged travel restrictions could decrease store traffic and pressure Chinese spending, in both China and countries frequented by Chinese tourists. The company anticipates the outbreak in China to slash about $100 million in revenue on an adjusted basis in the fiscal fourth quarter.

“This estimate could materially change if the severity of the virus worsens, including potential broader impact on our business outside of China if outbound travel and tourist traffic is further restricted from China into other countries,” said Chairman and Chief Executive John Idol.

Burberry, the British luxury fashion company, said Friday that the outbreak is hurting sales in China. “The spending patterns of Chinese customers in Europe and other tourist destinations have been less impacted to date but given widening travel restrictions, we anticipate these to worsen over the coming weeks,” Burberry said.

Tapestry Inc., TPR 2.15% which owns handbag and accessory brands such as Coach and Kate Spade, on Thursday said it expects the epidemic to cut sales by about $200 million to $250 million for the second half of the fiscal year.

“The escalating coronavirus outbreak in China is now impacting our business, resulting in both significant traffic declines and the closure of the majority of our stores on the mainland,” Chairman and Chief Executive Jide Zeitlin said. “If the situation further deteriorates or the outbreak further affects demand outside of the country, this impact could be worse.”

Chinese visitors have become a pillar of the European tourism industry. Italy, their top European destination, had 5.3 million overnight stays last year from Chinese visitors, who stay in Italy for almost 13 nights on average, more than for any other country’s tourists, according to the Bank of Italy. Americans are in fifth place at 9.6 days.

In Paris, the average Chinese tourist spends about €1,000 ($1,099) during a trip, compared with €640 for tourists overall, according to the Paris Chamber of Commerce. Chinese are some of the biggest-spending tourists in France, purchasing around €4 billion each year, according to the Bank of France.
Many Chinese consumers prefer to get a Gucci bag in Milan or Hermès perfume in Paris, where the prices tend to be lower than in China. Some brands also sell products in Europe that can’t be found in China.
By Eric Sylvers in Milan, Dave Sebastian in New York and Matthew Dalton in Paris.