The Strong U.S. Dollar’s Mounting Drag On Tourism and Retail

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Destination cities feeling the impact of fewer global travelers include New York, Los Angeles, Miami and Las Vegas.
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The dollar’s strength against other major currencies is causing a decline in U.S. tourism — the latest consequence American footwear companies are facing due to FX shifts.

The volatility of the foreign exchange market and its impact on shoe businesses with significant international exposure have been a recurring theme in the industry for much of the year, particularly when the dollar reached an 11-year-high in March.

VF Corp., Genesco Inc., Nike Inc., Macy’s Inc. and many others have absorbed currency hits at their global operations — some handling the pressure more successfully than others.

Now, analysts caution that currency pressure is mounting on the home front, too.

“Given [that] booking travel for large vacations usually happens three to six months out, we believe FX is becoming more of an issue now and will likely accelerate over the next several months,” said Wunderlich Securities Inc. analyst Danielle McCoy. “We believe companies that have a disproportionate store base in key tourist-destination cities in the U.S. could suffer from a shortage of international shoppers.”

Those key cities, market watchers say, include New York, Los Angeles, Miami and Las Vegas.

“We have heard from most retailers in footwear and apparel that their tourism markets are being impacted by FX pressure,” B. Riley & Co. analyst Jeff Van Sinderen said. “We are hearing it about companies on the Canadian border, Mexican border and, of course, in heavy tourist markets such as New York and Los Angeles.”

Matt Powell, a sports-industry analyst at NPD Group, also noted an impact in New York and Miami but said it hasn’t been dramatic yet. “I expect this situation to continue until the dollar comes back in relation to foreign currencies,” Powell added.

Macy’s is one of the department-store chains that is being affected by the tourism-retail decline, market watchers have noted.

“The slowdown in tourism is clearly hurting Macy’s because of its strong presence in large metropolitan areas (1 percent impact to 1Q comp), and it does not expect to see a pickup anytime soon,” wrote Normura Securities International Inc. analyst Robert Drbul in a June 9 note.

Analysts say Decker Brands, which has locations in key tourism hotspots, has already felt the effects of the slowdown.

“[Deckers’] store comps decreased 6.5 percent as increased conversion was more than offset by decreases in traffic and [average unit retail]… We would note that light tourism in key markets — Hawaii, Las Vegas and New York — had a disproportionate impact to comp [in the fourth quarter] given their contribution to store sales,” Drbul said in a May 28 note.

Van Sinderen said he can’t limit the effects of FX pressure to a short list of companies. “I cannot think of any companies [in key tourism markets] that have said [FX headwinds] is not a factor to at least some extent,” said Van Sinderen.