Good buys for tourists as pound plunges

The pound's drop after Brexit has American and Chinese travellers searching for bargains to go to Britain.
Tourists take photos with the London skyline as backdrop on June 28.
Tourists take photos with the London skyline as backdrop on June 28.PHOTO: BLOOMBERG

LONDON • Chinese news site Phoenix has implored visitors to London to "buy, buy, buy" while searches by Chinese for British holidays have skyrocketed on travel services website Ctrip.com.

By voting to leave the European Union, Britons have delivered a potential windfall to tourists eager to snatch up Burberry trenchcoats, Harrods stilton cheese and Liberty scarves on the cheap. The outcome of Thursday's referendum has sent the British currency plunging, making the country's goods and services cheaper for foreign buyers.

The slumping pound is a much-needed shot in the arm for British luxury companies as the Chinese are the biggest buyers of high-end goods and make most of their purchases overseas.

They made 270,000 trips to the UK last year, up 46 per cent, according to tourism website VisitBritain. British Airways owner IAG said this week that the weaker pound will boost tourist flows to Britain.

 

"I wouldn't be surprised to see Chinese and Middle Eastern tourists flocking to the UK as their purchasing value has increased," said Mr Edouard Meylan, chief executive officer of Swiss watchmaker H. Moser & Cie. "People are ready to travel to get a 5 to 10 to 20 per cent discount."

More visitors would be a boon for British companies such as Burberry and Mulberry that have struggled amid slowing demand for luxury goods and terror attacks in Europe. The UK is the world's sixth-largest market for luxury spending, at €15.5 billion (S$23.2 billion). Any short-term fall in the pound will affect the number of visitors to London, said Harrods managing director Michael Ward.

However, some luxury companies may raise UK prices if the pound's weakness persists. And investors remain bearish on what the EU referendum means for the broader sector, as reflected in sliding stock prices for France's LVMH and Gucci owner Kering. Still, a 10 per cent drop in sterling could add as much as £90 million (S$164 million) to Burberry's pre-tax earnings, according to MainFirst Bank analyst John Guy.

Britain's gain could come at the expense of retailers in Japan, casinos in Macau and jewellers in Hong Kong. Switching travel to the UK and Europe from Japan could save Chinese shoppers as much as 40 per cent with the currencies' shift against the yuan, said Bloomberg Intelligence analyst Michelle Ma.

It is also bad news for Macau casinos, as the yuan depreciates against the Hong Kong dollar, prompting fewer Chinese to visit the gambling oasis, according to JP Morgan analyst D.S. Kim.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on June 30, 2016, with the headline 'Good buys for tourists as pound plunges'. Print Edition | Subscribe