According to consultants Bain & Co., spending by tourists accounts for a third of the sales of luxury goods. Since the terrorist attacks in Paris last November, fewer tourists have been traveling to Europe. Spending by tourists declined by 5 percent in Europe and 16 percent in France following the attacks in Paris. The situation is expected to worsen with the recent terror attacks in Brussels.
Despite the decline in tourism, luxury handbag maker Hermes reported profits that beat analysts’ estimates. Its operating profits rose to $1.7 billion on an adjusted basis, and the company’s profit margin increased to 31.8 percent. Hermes’ sales in France rose by 6 percent. Hermes said its earnings rose 19 percent last year, and it is projecting another increase this year.
Hermes has opened two new factories in France to increase its supply of handbags and other leather items. Hermes plans to make up for declining sales in some places by increasing sales in other cities, such as London and Milan. Sales have increased in Japan because of a growing number of tourists from China. Nonetheless, Hermes kept its guidance for 2016 at a projected growth rate of 8 percent or less. Luxury companies are also dealing with declining sales in Asia, especially China, Hong Kong, and Macau.
Hermes plans to raise its prices by 3.5 percent this year to keep pace with production costs. The company lowered its sales outlook again this year. It predicted that currently neutral growth would be less than half what it was in the early 2010s. It had the weakest fourth-quarter revenue increase in six years.
Paris-based Hermes is known around the world for its expensive and high-end Kelly and Birkin handbags. Hermes has not offered a margin forecast or projected its sales growth for this year. The market for luxury goods is expected to increase by about 2 percent this year.
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