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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At the 189-unit Karstadt department store chain, part of the Karstadt Quelle Group, second-quarter sales inched up 1.2 percent to $1.75 billion (1.6 billion euros) from $1.72 billion (1.58 billion euros) a year ago. Dollar figures have been converted from the euro at current exchange. The company said German retail sales “stabilized in the second quarter and the planned tax reform and longer Saturday shopping hours were a positive signal.”

Sales at the 149 Kaufhof, Kaufhof Galeria and Galeria-Inno stores were down 0.7 percent to $908.5 million (831.9 million euros) in the second quarter.

In Italy, the number of foreign visitors dropped by about 1.5 percent in the first five months of the year, according to the most recent data from Italy’s national tourism organization, Enit. Of that, the number of Americans dropped 12 percent, while the number of Japanese visitors fell by 10 percent.

Before war broke out in Iraq last March, Italy was seeing a 10 percent jump in foreign visitors on depressed 2002 figures. But the military conflict ended that growth trend quickly. More tourists, especially big spenders like Americans and the Japanese, decided to stay home in April and May.

Figures from Global Refund, a private company that administers refunds of value-added tax to tourists, show steep drops in refund-qualifying shopping in June. Japanese tourists spent 43 percent less; Americans, 32 percent less, and Chinese and Hong Kong residents, 54 and 50 percent less, respectively. Sales in Europe account for about 95 percent of the sales that qualify for VAT refunds.

“Most people believe that the rock bottom has been hit and it’s coming back slowly,” said Marie Bergfelt, Global Refund’s marketing coordinator. She agreed that Japanese and American tourists, the ones most likely to seek VAT refunds from European shopping trips, are behaving cautiously.

“We are looking very much at Japan. The Japanese are very important shoppers in Europe and they seem very hesitant to come,” she said, adding there was a “slight chance” of a tourism pickup this autumn.

Kent at Morgan Stanley said she expects tourism to recover slowly in the second half. “Japanese travelers tend to book well in advance so any positive sentiment towards long-distance travel will take six months to come through,” she said. “We imagine American tourists are bound to return to France as the memory of the diplomatic fracas recedes.”
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