Consumer

Andrea Felsted is a Bloomberg Gadfly columnist covering the consumer and retail industries. She previously worked at the Financial Times.

With U.K. inflation unexpectedly jumping to the fastest rate in four years, the squeeze on domestic consumers is well underway. 

Now it seems overseas travelers, who also helped to prop up the British economy in the wake of the Brexit vote, are becoming more cautious after the recent terrorist attacks on the U.K.

Merlin Entertainments Plc said Tuesday the incidents had deterred Britons from visiting attractions including the London Eye, Madame Tussaud's wax museum and some of its theme parks. It also highlighted a danger that overseas travelers might think twice about booking holidays to the U.K.

Rollercoaster Ride
Merlin's parks were hit by a crash two years ago but have recovered since
Source: Bloomberg

Shares in Merlin fell as much as 4 percent. Burberry Group Plc, another beneficiary from overseas travelers to London, also slipped in early trading.

There is no doubt that Britons and overseas visitors alike will be more nervous about trips to city center attractions. Parents are likely to worry about their children visiting bars or restaurants in busy locations.

But in the absence of further atrocities, demand should bounce back relatively quickly. That's what happened after the July 2005 terrorist attacks in London.

The leisure sector may find that weaker spending in urban areas might be offset by increased trips to other regions, such as coastal resorts, particularly if the weakness of sterling prompts Britons to opt for a stay-cation instead of a holiday abroad.

It's possible that Merlin's concerns over the impact of terrorism are overdone. So there might be other factors feeding into its darker outlook, including reduced leisure spending as Britons' incomes come under pressure. Days out and restaurant meals have been one of the biggest beneficiaries of their expanding spending power over the past few years. That could now reverse.

Big Spenders
Merlin has benefited from overseas tourists flocking to the U.K. to take advantage of the weak pound
Source: Bloomberg

Analysts at Berenberg point out that like-for-like visitor numbers to Merlin's mid-market attractions have been falling for the past three years, suggesting that pricing may have been pushed too high. Meanwhile, Legoland might also have been artificially boosted by Lego movies, which may not necessarily be repeated. 

We won't know until we've passed the peak vacation months of July and August whether the worries Merlin mentioned Tuesday turn out to be blip or are a part of a more-entrenched downturn. Even with Tuesday's fall, shares in Merlin are up 18 percent over the past 12 months, and trade at a forward price earnings ratio of around 21 times, in line with their average over the past two years. 

Given the clouds gathering both domestically and on the international visitor horizon, it would be wise to be cautious.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Andrea Felsted in London at afelsted@bloomberg.net

To contact the editor responsible for this story:
Jennifer Ryan at jryan13@bloomberg.net