China travel warning spells trouble for U.S. luxury retailers

China‘s new warning discouraging its citizens from traveling to the U.S. will mean fewer free-spending Chinese tourists. They account for some of the highest tourism traffic and spending in America.A typical Chinese visitor bought $6,700 in goods and services in 2017. Luxury retailer Tiffany blamed lower sales in its most recent quarter to dwindling Chinese tourism in U.S.

China issued a travel warning Tuesday discouraging its citizens from traveling to the U.S., the result of an increasingly bitter trade dispute that’s now dealing a blow to American luxury retailers dependent on free-spending Chinese tourists.

Chinese visitors account for some of the highest tourist traffic and spending in America. In terms of bilateral trade, travel is the largest U.S. industry export to China, counting for nearly one-fifth of all U.S. exports to the country. Spending from Chinese visitors and students reached $35.3 billion in 2017, according to the U.S. Travel Association.

The typical Chinese visitor to the U.S. dropped an average $6,700 in purchases in 2017 — about 50% more than the average international visitor. Chinese tourists are more likely to buy high-end consumer goods like jewelry, cosmetics, apparel and electronics.

That extravagant spending has made overseas Chinese visitors highly coveted by U.S. businesses, particularly luxury retailers, which are now getting hurt by the slowdown in travel. Travel from China slipped in 2018 for the first time in 15 years, impeded by a slowing global economy, a strengthening dollar and rising trade tensions.

“It is an undeniable fact that Chinese travel to the U.S. has been a huge win for the U.S. economy and jobs, and there are warning signs that advantage is beginning to erode,” Tori Barnes, executive vice president for public affairs and policy at the U.S. Travel Association, said in a statement in response to reports of slowing travel.

25% percent slide in tourism sales

Tiffany said in its earnings report Tuesday that while it performed better than expected, it experienced a 25% slide in tourism sales from the prior year and said the decline was even sharper among Chinese tourists. A bellwether for the luxury sector, Tiffany previously blamed dwindling Chinese tourists in November for a poor holiday season.

It’s not the only luxury retailer to point to falling Chinese tourism: Louis Vuitton last year also blamed fewer Chinese tourists for weaker sales. “The Chinese economy is the economy that saved the luxury market after the recession, so it’s absolutely critical that the Chinese consumer be healthy,” said Luxury Institute CEO Milton Pedraza.

That may mean high-end retailers like Tiffany will follow those consumers to mainland China, where the company is building stores and expanding an online retail presence. Tiffany CEO Alessandro Bogliolo said in Tuesday’s earnings call that his company is purposely keeping retail prices for jewelry down in China currently to bolster sales there, despite already getting hit by Chinese tariffs to its jewelry exports.