NYC Shops Cater to Euro-Toting Tourists

The U.S. is on sale. And in New York City, some of the price tags are marked in euros.

The number of international tourists who came to the city last year grew by 20%, to 8.5 million, according to research by consulting firm Global Insight for NYC & Co., the city's official marketing and tourism organization. Many of those visitors came from Germany, Spain, Italy, and France. And no wonder, with the euro having gained about 12% against the dollar over the past 12 months. On Feb. 28, a day after Federal Reserve Board Chairman Ben Bernanke talked about further interest rate cuts, the dollar traded at an all-time low against the euro, $1.52 to €1.

A Year-Round Shopping Spree

For many retailers in New York and other tourist destinations, the foreign influx is helping to offset the shrinking confidence of their U.S. customers. Last year, foreign tourists spent $2.9 billion shopping in New York, according to the city. "My European customers just can't get enough in luxury stores like Louis Vuitton or Marc Jacobs, or those funky little boutiques in SoHo and the Lower East Side," says Marla Hander, the president of Shop Gotham, a shopping service that caters to domestic and foreign tourists.

The price difference for a European is noticeable even when shopping for something as cheap as a pair of sneakers, says Celeste Rivera, a store representative at the Adidas Heritage store in the city's trendy SoHo neighborhood. "A lot of those shoppers are from Germany," she adds.

Foreign-speaking visitors have always crowded Manhattan's streets during the Christmas holiday season, but now more are coming year-round. Kathy Duffy, a spokeswoman for Marriott Hotels (MAR) of New York, notes that more foreign residents at her hotel are coming strictly for shopping, some through travel agencies that organize shopping-only tours. One such agency in Britain brings three times as many customers to New York today as it did four years ago, according to Duffy.

Although international travelers only made up of 17% of total visits to New York City, "they stay longer and spend more," says Christopher Heywood, a spokesman for NYC & Co.

Everything Must Go!

Some retailers are even posting "Euro Accepted" signs in their windows. "Most people don't think it's a big deal," says Imran Ahmed, a store manager at East Village Wine & Liquors, a small retailer on the Lower East Side. "A lot of our customers are based in New York, but many are Europeans."

For economists, the tourism boom also drives home the broader forces at work behind the dollar's decline. Those same forces have led to a surge in foreign investment in the U.S. Big financial houses such as Citigroup (C) and Merrill Lynch (MER) recently raised billions from government funds in Kuwait, Singapore, Korea, and elsewhere. Foreign purchases of U.S. assets last year set a record of $405.7 billion, according to Thomson Financial (TOC), up 92% from $210.9 billion in 2006. The dollar's decline is "part of a broader adjustment needed to bring the U.S.'s trade deficit down," says Brad Setser, an international economics researcher at the Council on Foreign Relations.