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The Euro Consumer: Hot, Feeling Poorer

France’s recent killer heat wave is just the latest headache for stores already pummeled by weak tourism, a strong euro and economic doubt at home.

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“The main issue in Europe is weak tourism and that’s been impacted by several factors — the strong euro, fears of terrorism and the fact that Americans are choosing to avoid France for now,” said Claire Kent, chief luxury goods analyst at Morgan Stanley in London.

Sarah Lerfel, who runs the hip Paris boutique, Colette, did not mince words when asked about her summer business. She said there were “a lot less Americans” than in previous years and the heat wave had a “very bad” impact on sales. And the few customers who crossed the threshold were bedraggled at best.

“We do have air conditioning, but it wasn’t sufficient for the heat wave we endured,” she said. “Our staff had to be very philosophical about it. [The strikes in Paris] created a very bad atmosphere, as well.”

In a research report released last week, Paris-based HSBC analyst Nathalie Schneider estimated sales at Hermès’ Paris flagship, where tourists make up 25 percent of the customer base, were down 16 percent in the second quarter. The number of Japanese tourists traveling abroad declined 42 percent in April, 55 percent in May, 46 percent in June and an estimated 30 percent in July, according to her report.

“The magnitude of the decline in European sales exceeded our forecasts,” she wrote. “For our part, we believe that local demand was also particularly weak.”

In reporting its second-quarter sales, luxury giant LVMH Moët Hennessy Louis Vuitton cited France as the most troublesome market in Europe and acknowledged that even sales of its star brand, Louis Vuitton, were affected here.

Economic trends in Europe generally trail the U.S. and analysts say high-income workers in Europe are now beginning to fret about job security. Economic data released in France this week shows the French economy — the second largest in Europe after Germany — shed 60,000 jobs in the first half of the year, fuelling pessimism among French consumers. A recent study by the government’s Ministry of Social Affairs shows 80 percent of French citizens worry that unemployment will increase in the coming months, up from 50 percent a year ago.

In recession-plagued Germany, where consumer confidence has been practically in free fall since 2000, stores have hardly had a stellar year. Retail sales in the first half were down 4 percent, compared with an 8 percent drop in the first half of 2002, according to the German Apparel Retailers Association.
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