Strong dollar could scare tourists away from U.S.

[January 20, 2015]  By Jilian Mincer

(Reuters) - New York restaurant owner Jeremy Merrin has seen business droop in recent weeks at his Havana Central eatery in Times Square. The reason: not enough international tourists.

"We’re fighting a double-whammy,” said Merrin, who owns three restaurants and is on the board of the New York State Restaurant Association. “Not only is the dollar going up and making things more expensive, Europe as a whole is not doing well.”

International tourists to the United States spend more than $200 billion annually on travel, hotels, dining and shopping, but growth in 2015 is expected to decelerate as would-be visitors balk at the stronger dollar and grapple with weaker economies at home.

"That could impact the length of their stay and the composition of their spending in the United States," said David Huether, senior vice president, research, at the U.S. Travel Association, which sees the influence of the stronger dollar becoming more severe in 2015's second half.

The problems of the tourism industry are not the only ill effects of currency appreciation. The strongest dollar in a decade, by some measures, is causing some U.S. manufacturers to cut financial forecasts as the costs of U.S. exports rise. U.S. companies with foreign operations also will see lower revenue as offshore earnings are converted back into dollars.

Travel experts hope some of the drop in spending in the United States will be made up for by increased tourism from China, where visitors can now get a visa that lasts 10 years. Lower gas prices and a stronger U.S. economy also may encourage more domestic travel, they said.

Still, some retailers, including Tiffany and Co <TIF.N>, are already feeling the impact.

"The strong dollar has created headwinds for foreign tourists in the United States," said Mark L. Aaron, vice president of investor relations at Tiffany, which warned of slower sales to tourists at its flagship New York store.

"Tiffany is the first poster child of this issue," said Craig Johnson, president of consulting firm Customer Growth Partners. "A lot of retailers might be hit to some degree."

He said the trend could slow the growth of other successful luxury brands that depend heavily on tourists. "We believe that Michael Kors <KORS.N> and Kate Spade <KATE.N> will still be showing solid growth, but not the robust, double-digit we've seen over the last couple of years," he said.

Kate Spade did not respond to a request for comment. Michael Kors declined to comment.

RISING DOLLAR

The dollar has climbed about 15 percent against the yen and the euro over the past six months. It is up about 6 percent against the won.

Chris Gaffney, senior market strategist at EverBank Wealth Management in St. Louis, expects the strong dollar will affect a number of U.S. sectors that serve foreign tourists, including airlines, hotels, and retail. Companies with tourism operations abroad could see relief because “For American tourists, Europe is on sale," he said.

Morningstar equity analyst Paul Swinand said department store chains with a large presence in some of the "gateway cities" could see a 1 percent or 2 percent slip over the next year because of lower tourist spending.

A 10 percent appreciation in the dollar typically results in about 2 percent fewer international visitors annually, said Adam Sacks, president of consulting company Tourism Economics, which expects the number of international visitors to climb by 3.5 percent in 2015, compared with 5 percent annual growth over the past 10 years.

Growth in the number of foreign tourists coming to the United States had already started to slow last year, largely because of economic problems in home countries. The number of Japanese visitors through last October was 4 percent lower than the previous year, according to the most recent Department of Commerce numbers. The number of Venezuelans was off 18 percent, but Mexican and Chinese tourists both were up more than 20 percent.

"Despite the higher dollar, the Chinese have saved money to travel," said Evan Saunders, chief executive and co-founder of Attract China, which is expecting many more Chinese tourists this year.
 

He said the Chinese tourists his company works with are eager to try everything from Shake Shack <SHAK.N> to outlet malls. "They want to do what they have seen in TV shows or American movies," he said.

(Reporting By Jilian Mincer; Editing by Peter Galloway)

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