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A weak American economy is not a long-term solution

Who's gaining from a weak dollar?

Jul 17, 2008

Overseas tourists have yet to return to the United States at pre-9/11 levels, but those who do visit the country are spending like never before.
Last year, overseas visitors spent $96.5 billion. That's up from the $88 billion spent in 2000, according to the Travel Industry Association.

The pitch of "America is on sale" certainly helps. With the euro now worth 1.6 dollars and the British pound worth two dollars, the declining value of a greenback means cheaper goods for overseas tourists with strong currencies. The trend may push the domestic tourism market through an otherwise sluggish summer. In March (the latest available month for data) international visitors spent $11.4 billion, up 20% from the previous March.

Still, the increased spending is bittersweet for the industry. Between 2000 and 2007, the United States welcomed 2.1 million fewer visitors, from a peak of 26 million in 2000.

"It's very easy in the current environment," says Geoff Freeman, senior vice president of the Travel Industry Association, "to assume that things are good, but the real shame of the situation is that we're not back to where we were [before]."

In the meantime, the domestic tourism market is positioning itself as a bargain destination for overseas travelers, and their eagerness to spend has created bright spots in pockets of the country.


The U.K., Japan and Germany continue to dominate in the number of visitors they send to the U.S., though the number of tourists from Brazil, China and India increased between 11% and 23% through April of this year. Among the most popular activities for overseas visitors, according to the Department of Commerce, are dining in restaurants, sightseeing in cities and visiting historical places.

Tourists can do all three in cosmopolitan cities like New York and Los Angeles, both of which have seen increased spending by overseas visitors.

In 2007, the Big Apple welcomed 46 million domestic and international visitors who spent a total of $28 billion, handily beating low expectations for the softening tourism market.

Since 2000, overseas arrivals have increased by 34%, according to Chris Heywood, vice president at NYC & Company, the city's marketing and tourism organization. Business is expected to slow this year, but NYC & Company is still forecasting a growth of 4% across domestic and international markets.

While spending is concentrated in tourist strongholds like the Upper East Side and Midtown, both home to famous museums and attractions, Heywood says foreigners are beginning to explore the boroughs as well. In discussions with the organization's partners, Heywood learned that tourists are traveling to the Bronx to see the New York Botanical Garden and the Bronx Zoo.

An interest in seeing more of New York extends to lodging as well. At a Marriott (nyse: MAR - news - people ) hotel located near the tony neighborhood of Brooklyn Heights, the number of international guests has increased significantly. Kathleen Duffy, director of public relations for New York City Marriott hotels, says that travelers from the U.K., Canada and Germany looking to enjoy the area's boutique shopping and chic restaurants have contributed to the surge. Respectively, bookings by travelers in these markets have increased 67%, 31% and 56% in the past year.

Tourism officials in Los Angeles have also noted an upswing in spending by overseas tourists. The Los Angeles Convention and Visitors Bureau estimates that 2.6 million overseas visitors spent $3.4 billion in 2007, an increase of 138,000 visitors and $200 million from 2006.

William Karz, a spokesperson for the department, says that the theme park Universal Studios is the city's top attraction. Other popular destinations include the Getty Museum, the Beverly Center and the Nokia Theater, where the television show American Idol holds its finale episode.

The Beverly Center, a retail complex located at the edge of West Hollywood and Beverly Hills, has seen increased traffic by overseas tourists who come to purchase goods from luxury stores like Louis Vuitton, Dolce & Gabbana, Gucci and Coach (nyse: COH - news - people ).

Recently, this included a couple from Asia who bought a Tumi suitcase and filled it with their purchases. General manager Jeff Brown heard the anecdote from a retail tenant and says that it's reflective of not only a trend to take advantage of a weak dollar, but also a growing number of wealthy tourists from developing economies who frequent the complex's luxury stores.


The shopping habits of overseas tourists have an additional financial impact for peripheral businesses and services like valet parking, guest services, hotels and restaurants. In New York, for example, employment in the leisure and hospitality sectors is running ahead of national trends, according to Heywood. For the first two months of 2008, New York City saw a 4.6% growth in the accommodations and food sectors, compared to a national increase of 2.5%.

While retail bargains are a big draw, foreign tourists are also keen to see the nation's iconic parks and landscapes. Noel Irwin Hentschel, chairman and CEO of Los Angeles-based American Tours International, says that the company's motor coach tours have increased in volume by 80% over the last two years. Each year, the tour company sells motor coach, car and small group packages to an average of 800,000 customers from 70 different countries.

The most popular trip is a 15-day tour of the West, including stops in Los Angeles, the Grand Canyon, Death Valley and Yosemite. Irwin Hentschel says tourists enjoy visiting mega-grocery stores along the way and regularly purchase packages which include trips to Indian reservations.

Geoff Freeman of the Travel Industry Association admits the spending is a positive trend, but he is also worried for the future.

"A weak American economy is not a long-term solution," he says. "Where's the appetite when the dollar strengthens?"

Who's gaining from a weak dollar?

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