Economic Insights

Luxury Suffers in Paris

One year after the terrorist attack in Paris we already have data on how it has affected tourism. Not good news, but the impact has been limited

Leeson. 12/01/2017

Twelve months have passed since Islamic terrorism struck the French capital. At that time, it was already obvious that these events could have a negative impact on sales of luxury products in France, the main market in Europe (the city has a market share of around 5% of the world luxury market, according to BNP Paribas). The French capital is in addition the base of several of the main companies of the sector, like LVMH and Kering.

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Tourists from Japan fell by almost 40%

Forecasts were not positive and unfortunately the data corroborate them. In 2016 the number of tourists who have visited France has been reduced by 8%, with a special punishment for Asian visitors, who are one of the main buyers of European luxury products. Tourists from Japan fell by almost 40% and from China dropped by nearly 25% compared to the previous year, 2015.

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The number of tourists who have visited France has been reduced by 8%

This last figure, the fall of Chinese tourists, is especially significant, as citizens of Asian giant are responsible for a third of the sales of luxury products worldwide (counting both purchases made within China and those made by them when traveling). It is not surprising, therefore, that the revenues of the top hotels in the country have been reduced by 35% in 2016, the worst annual decline recorded.

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The pound crash due to Brexit’s triumph boosted sales of luxury products

The good news for the industry is that at the brand level the impact has been very limited. While it is true that most of the companies have admitted a decline in their sales in France, they have been able to offset it with increases in other regions, such as the United Kingdom, where the pound crash due to Brexit’s triumph boosted sales of luxury products due to their relative cheapness compared to other markets.

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France seems determined to regain its status as a preferred tourist destination

The other good news is that France seems determined to regain its status as a preferred tourist destination and will launch a plan to increase security within its borders, especially in Paris. Although the fact that the Government maintains a large police deployment in the country should be interpreted positively, the fact is that this same fact makes many tourists fear that violence can be reintroduced at any time within the capital, which limits the recovery of tourism to the country. RBC, for example, cited France as one of the top markets in 2017 for the luxury industry after bottoming in 2017.

Disclosure: The Luxonomist is not responsible for the views expressed in the article. The text has been written freely expressing their own ideas, without receiving any compensation. The author has no business relationship with any of the companies whose shares are listed in this article.

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