The Moodie Davitt SPEND Index: How currency fluctuations impact travel retail

INTERNATIONAL. Welcome to the fourth edition, and the first for 2019, of The Moodie Davitt SPEND Index, a platform that tracks the effects of currency fluctuations across leading travelling nationalities and destinations – a key driver of travel retail spending.

Among all the factors affecting travel between nations, exchange rates are one of the most important, as they are central to determining relative spending power.

Our Moodie Davitt SPEND Index continues to track the effects of currency fluctuations across selected travelling nationalities and destination countries – a key driver of spending in travel retail.

The SPEND Index examines the changing value of selected home currencies against other currencies abroad. That relativity carries significant weight when it comes to decisions about whether and where to travel, and travellers’ propensity to shop while overseas.

The SPEND Index embraces 15 of the most common currencies used in global travel retail.

The nationalities that enjoy an increased spending power (‘Winners’), based on the evolution of their domestic currency over the past 12 months (up to 31 March 2019) versus a basket of 14 other currencies, are listed below.

A SPEND Index of less than 100 indicates that the spending power of this nationality has improved over the past year due to a stronger currency. Likewise, a SPEND Index greater than 100 indicates that the spending power of this nationality has weakened due to a weaker home currency.

The nationalities to have benefited the most over the past year are those from the US, Thailand, Canada, Singapore, Switzerland, Japan and, more marginally, those from India and New Zealand. Currency values and rates of exchange on 31 March 2019 have been compared to those valid on 31 March 2018.

US overseas travellers (ranked number one in the table above) are not known to be particularly frequent or big spenders in duty free and travel retail, including duty free shops located domestically (buy on departure) in the US. That is driven by a combination of low duties and a lack of awareness of duty free among US citizens.

In 2018 about 90 million US citizens travelled abroad. Those who did spend in duty free and travel retail certainly benefited from their increased purchasing power. A basket of products that cost U$100.00 on 31 March 2018 now costs US travellers US$93.14 on average (all countries and destinations), a saving of 6.7%.

Second-ranked Thailand is mainly known as a major destination country, particularly for Chinese visitors who have driven the Thai duty free to new heights. However, it is not just about inbound travel; some 10 million Thais travelled abroad last year, mainly to Japan, South Korea, Taiwan and more lately, Russia.

With a SPEND Index at 94.72, these Thai overseas travellers saw their purchasing power improve by +5.3 % on average (all destinations) over the past year thanks to the strengthening of the Thai Baht. Duty free locations, for example in Tokyo, Seoul and Taipei may all have seen increased spending by Thai shoppers, no doubt explained by their increased spend power.

The SPEND Index also offers the possibility to study details and numbers between pairs of nationality and country of destination (see table below).

Over the past year the Brazilian Real (BRL) has weakened against all other currencies in the basket. Thus, all nationalities visiting Brazil (ranked number one, see table above) make a saving averaging 10.5% (SPEND Index 89.47) when shopping in any Brazilian duty free shop.

The savings range from 15.8% made by visiting US travellers to a more modest 1.7% for Russians visiting Brazil.

US travellers are very well off visiting and shopping in any Eurozone country (rank number two) as the US Dollar has strengthened considerably over the past year. Last year on 31 March 2018, US$1.2325 fetched €1.00; on 31 March 2019 only US$1.1221 was required to buy €1.00. Thus, shoppers from the US today make a saving of nearly 9% (SPEND Index 91.05) on their duty free and travel retail purchases in any Eurozone country as compared to one year ago.

As the table above shows, shopping in Russia (rank number three above) has also become attractive following the depreciation of the Russian Rouble in the recent 12-month period. All 14 nationalities monitored here now make a saving of 8.9% (SPEND Index 91.14) on average when shopping in Russia compared to one year ago. Again, US travellers make the biggest saving in Russia, up to 14.3% (not shown in table).

Also of interest is the analysis of nationalities and currencies that have suffered over the past 12 months.

The nationalities that have lost most in terms of their spending power are shown in the table below.

The above seven countries, and outbound travellers from these countries, have all seen their currency weaken, effectively meaning that today their currencies are worth less than one year ago.

The table below shows the results pairing nationalities with country of destinations.

Travellers from Brazil (SPEND Index 111.91, rank number one in the table above) and Russia (SPEND Index 109.88, rank number two) are the nationalities that have suffered the most over the past year in terms of their spending power. No matter what the destination, they will find that their duty free and travel retail purchases are now much more expensive compared to one year ago. The Brazilians pay on average 11.9% more today on average (all destinations) whilst the Russians must accept an additional 9.9% cost.

The Brazilians are particularly disadvantaged in the US where they face a cost increase of 18.7%. Russians will find that their popular destination of Thailand has now become 14.9% more expensive (not shown in the table).

Dufry is the leading duty free retailer in Brazil as well as in the world. In Dufry’s Annual Report 2018, CEO Julián Díaz acknowledges: “In Latin America, currency devaluations – notably in Brazil and Argentina – affected the purchasing power of these important nationalities.”

With the strengthening of the US Dollar as seen over the past year and being at a level of about 10% higher than its long-term five year average, the US has become a relatively expensive country to visit. In the table above the destination country US appears no less than seven times (out of 12) as an “expensive country” when pairing nationalities and destinations.

Eurozone travellers (rank number three) are faced with a SPEND Index of 109.84 when visiting the US, meaning that their duty free purchases are now nearly 10% more expensive than a year ago. Along with other factors, in 2018 this currency movement negatively affected the number of incoming visitors to the US from the 19 Eurozone countries. This was especially the case for Germany, perhaps also evidence of a reaction to unpopular US diplomacy and policies.

In Asia Pacific in 2018, the two very important US inbound source markets of South Korea (rank number seven) and China (rank number eight) both contracted in terms of the number of visitors. The currency factor is partly, but not entirely, to blame.

In the past the US used to be a very popular destination for travellers from all over the world although this popularity has weakened in recent years. In 2018 the inbound tourism market in the US grew by 2.0%, to be compared to 6.0 % globally. Since Donald J. Trump became President, the number of tourist arrivals in the US has not kept pace with the global average growth. As a result, the US has experienced a declining share of the global tourism market, losing out on many billions of US Dollars in revenue.

The Moodie Davitt SPEND Index analysis embraces 210 nationality and country of destination pairs, as well as 15 averages for nationalities (225 value indicators). It will continue to monitor the consequences and possible impacts of currency fluctuations on duty free and travel retail trade in the months ahead.


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