What: Sharp declines in tourist luxury spending in Japan and Europe, driven by currency fluctuations, are impacting major luxury brands' sales amid broader market challenges and US tariff concerns.

Why it is important: This shift in tourist spending patterns, combined with currency pressures and tariff impacts, reveals the vulnerability of luxury retail's traditional growth model, particularly as both US and Chinese consumers show changing behaviours in key markets.

The luxury goods industry is facing mounting challenges as tourist spending in key markets experiences significant decline. LVMH's fashion and leather goods division saw a 9% organic sales decline in the second quarter, primarily attributed to reduced American tourist spending in Europe and decreased Chinese tourism in Japan. This reversal follows a period when Japanese luxury sales surged by 57% at LVMH and 27% at Kering, boosted by Chinese tourists taking advantage of the weak yen. The US dollar's 10% decline against the euro in the first half of 2025 has diminished American tourists' purchasing power in Europe. Even Richemont, despite strong jewellery sales at Cartier and Van Cleef & Arpels, faces pressure from weakening tourist spending. The situation is further complicated by subdued demand in luxury's two largest markets, with Chinese consumer confidence at record lows and US demand appearing fragile amid tariff-related inflation concerns. Bernstein now forecasts a 2% decline in global luxury revenues for 2025, reversing its previous 5% growth prediction.

IADS Notes: The luxury market's tourist spending challenges reflect broader transformations observed throughout 2024-2025. As reported in June 2025, Japanese department store tax-free sales plummeted 41% year-on-year, marking a dramatic reversal from January 2025's record-breaking performance. This aligns with April 2025 data showing European suppliers' vulnerability to US tariffs, as they control 70% of global luxury production. The impact on consumer behaviour is significant, with June 2025 data revealing declining spending intentions among wealthy consumers globally. The Chinese market, traditionally a key driver of luxury growth, experienced an unprecedented 18-20% decline in January 2025, while December 2024 data showed the global luxury sector losing approximately 50 million consumers over two years. These shifts suggest a fundamental restructuring of luxury retail dynamics, where traditional tourist-driven growth models face disruption from both currency pressures and evolving consumer preferences.

Luxury brands hit by drop in tourist spending in Europe and Japan