What: European luxury retail faces significant revenue declines as American and Chinese tourist spending drops sharply, despite high visitor numbers, marking a structural shift in travel retail dynamics.

Why it is important: The disconnect between visitor numbers and spending reveals deeper changes in consumer behaviour, challenging luxury brands to adapt their strategies beyond traditional tourist-focused retail.

The European luxury retail sector is experiencing a significant downturn despite robust tourist arrivals, with brands reporting lower revenues as both American and Chinese visitors reduce their spending. While American travel to Europe increased by 6% in early 2025, only 33% of US respondents planned summer visits, down 7% from 2024. This decline is attributed to multiple factors, including the US dollar's depreciation against the Euro following Liberation Day tariff announcements and persistent low confidence among Chinese consumers. Major luxury groups including Ferragamo, Prada, Burberry, Moncler and Kering have reported EMEA revenue declines, with Moncler noting an 8% drop due to decreased tourist flows from America and Asia. While travel numbers are showing signs of recovery, with August airline capacity to Western Europe up 8% from North America and 7% from Asia, spending patterns remain subdued. Analysts suggest this could be a longer-term trend, particularly if US tariffs continue to impact buying power, though ironically, these same tariffs might eventually drive Americans back to European shopping destinations in search of better deals.

IADS Notes: The current European luxury retail slowdown mirrors broader global trends seen throughout 2024-25. In January 2025, China's luxury market experienced an 18-20% decline, while Japan saw tax-free sales plummet 41% by May 2025, indicating a fundamental shift in Asian tourist spending patterns. This aligns with the article's observations about reduced American spending, further complicated by LVMH's reported 11% decline in Asian markets. The impact of currency fluctuations has been particularly significant, with the strengthening yen and euro affecting purchasing power across markets. The global luxury sector's loss of approximately 50 million consumers over two years underscores the article's points about changing consumer confidence and spending patterns. These developments suggest a structural transformation in luxury retail rather than a temporary downturn, with traditional tourist-dependent markets like Hong Kong already pivoting towards new retail models.

Is Euro summer a bust for luxury brands?