UBS: European Luxury - Global Blue

March Global Blue tourist spend +12% y/y, Q1 +15%, 2016 -6%

Tourism spend is an important component of luxury revenue making up c35% of sales globally according to Bain. For Q1 overall, Chinese tourist spend globally has accelerated to +19% (Q4 -4%). In March, which slowed to +10% against a toughening two-year comparison base, Chinese spending growth was supported by an increase in average spend while the number of transactions remained flat. Early Q1 reporting indicates that Chinese spending worldwide has been up "high single digit" (Burberry) to "extremely strong" (Louis Vuitton) suggesting Chinese spending is growing strongly both in the Mainland and outside Greater China, though Hong Kong remains less dynamic.

By destination: Europe was +15% y/y with France catching up with the UK

In Europe, UK remained the strongest market (+24% y/y) although a deceleration from +55% in February. France accelerated to +21% y/y (+9% in February) while Italy and Switzerland also retained good momentum. In Asia, Korea was down significantly -31% y/y (-11% in February) given the political fallout with China as we discuss below to the benefit of Japan +25% y/y. Most luxury companies have commented that Hong Kong has seen some improvement recently, which we think is likely related to more attractive intra-Asia price gaps.

By nationality: US spend accelerated while Middle East spend declined

US tourist spend has accelerated to +26% y/y (+19% in February) due to a stronger currency. On the other hand Middle East tourist spend declined significantly to -7% y/y (+21% in February). Russian spend remains strong, posting +41% y/y mainly due to a stable rouble and better consumer confidence.

China's South Korea travel ban likely to have an impact on this market in 2017

The Chinese government has forbidden travel agencies to sell trips to South Korea as a result of political fallout from Korea's deployment of a US missile defence system. The ban affects group travel, independent travel and cruises etc. Bain estimates c.7% of Chinese spend globally is done in Korea (2% of luxury sales globally).

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