Aug 13, 2015
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China's big-spending tourists pause at stores as yuan drops

Aug 13, 2015

The Chinese tourists who have become a common sight in the world's major cities fear their wings will be clipped if Tuesday's shock yuan devaluation develops into a deeper dent in their spending power.

More than 100 million Chinese travel abroad every year, buying more luxury goods than any other nation. Shopping for the perfumes and designer clothes that can cost them twice as much at home is a major travel incentive.

The yuan's devaluation fuels uncertainty in the luxury sector

Huang Ruifen, a shop owner from Guangxi on a shopping trip to Hong Kong, told Reuters: "I'll stop buying luxuries until the yuan is up again," she said.

China devalued its currency by 2 percent after a run of poor economic data - a move some economists think could herald a longer-term slide in the exchange rate. The downward move was the biggest since a massive devaluation in 1994, and appeared to reverse a previous strong yuan policy.

Chinese tourists have been spending record amounts on luxury goods this year, VAT-refund company Global Blue said in a report published in April. For European destinations, the weak euro has been a big draw.

Analysts reckon Chinese luxury spending accounts for as much as 45 percent of the global market - up from effectively zero a decade ago. Chinese account for well over a third of total European luxury spending.

Despite the market reaction, the potential currency effects are mixed for the industry.

Global Blue says as much as 40 percent of Chinese tourist purchases abroad are destined to be sold for a profit back home on the grey market, so a weaker yuan may just displace some sales back into China.

Luxury sector margins are also generally higher in Asia, although the currency translation effects for European-based companies could cancel out some of that benefit.

"Overall it's likely to be negative in my view," said Nomura luxury goods analyst Christopher Walker, "(but) it's increasingly hard to monitor ... All the luxury companies are trying to manage their pricing and manage the gaps. This just throws another question mark into the pricing mix which makes it just difficult to manage a luxury business at this point."

It was business as usual, at Galeries Lafayette in central Paris, where visitors from China poured off buses and into the grand department store. Before Tuesday's dip, the yuan had strengthened 15 percent against the euro since the beginning of 2014.

"That should make sure that this devaluation doesn't have any significant consequences," said Catherine Oden, China director for Atout France, France’s official tourism promotion arm. "It's the end of the season anyway for the Chinese."

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