EXCLUSIVE: Affluent Chinese travelers wield an incredible purchasing power for luxury, but this first look at insights from a fresh report reveals whether this trend is set to continue and under which conditions.
To state the obvious, by now, it’s a well-known fact to anyone in the industry that hasn’t been living under a very large rock, that Chinese consumers have been the biggest global spenders on luxury products in the world over the last decade.
However, given the recent devaluation of the country’s currency, the question on the lips of luxury brands now is – will the nation’s purchasing power diminish and, more specifically, how will this hurdle affect its citizens’ buying behaviours both on local shores and overseas.
“ Affluent Chinese travelers are likely to become even more important for high-end brands ”
All the indications are that the anti-corruption clampdown is hitting domestic sales of luxury products, meanwhile international luxury markets are focused more on middle-class shoppers buying for themselves and their families. Thus, in the near to medium term, affluent Chinese travelers are likely to become even more important for high-end brands.
It is against this backdrop, that FBIC Global Retail & Technology and China Luxury Advisors (CLA) commissioned a proprietary survey completed by YouGov of 1,019 Chinese Internet users regarding their net monthly household income, number of international trips taken, destinations and retail purchasing behavior abroad during the twelve months through May 21, 2015.
Here, we present an exclusive excerpt from the study, which reveals a series of uplifting insights for luxury brands with indications that this lucrative set of shoppers is still on track to spend big abroad.
“ The typical Chinese traveler spends around US$1,678 on retail purchases per overseas trip ”
Consumer research undertaken exclusively for FBIC Global Retail & Technology and China Luxury Advisors found two-thirds of Chinese Internet users traveled overseas in the May 2014-May 2015 period.
When asked how much they spent on shopping on their last trip, travelers confirmed that the most popular spending bands were US$407–US$815 and US$815–US$1,222, while 3% spent more than US$6,516 on retail purchases on their last trip abroad.
Broken down, on average, the typical Chinese traveler spends around US$1,678 on retail purchases per overseas trip, with the most popular overseas shopping categories to date identified as: clothing, footwear and accessories (bought by 56% of travelers), fragrances and beauty products (52%) and electronics (32%), followed by health supplements or vitamins (23%), then watches (20%).
The most popular luxury shopping destinations during the period were Hong Kong (with 12.9% of respondents visiting during the survey period), followed by Thailand (10.3%), South Korea (9.5%) and Japan (7.3%).
Hong Kong and Taiwan, particularly, appeal to a relatively broad range of visitors by income, reflecting these countries’ historic ties to the People’s Republic as well as proximity.
By comparison, only 3.2% visited the US and 2.0% visited the UK, however, the survey suggests that the farther they travel, the more they are likely to spend – average per-visitor retail spend in Europe or the US was double the spending level in nearby Hong Kong.
In tandem with this, the survey identified that those with monthly incomes greater than US$1,629 had a significantly greater propensity to travel to Europe than those with monthly income below US$1,629; a differential of 400 to 500 basis points.
“ Overseas spending by Chinese tourists set to jump 23% to US$229 billion in 2015 ”
Future Travel Trends
According to the report, the momentum on most of the aforementioned travel/spend trends is expected to continue, with some minor shifts.
Total outbound passenger journeys will double between 2014 and 2020, to approximately 234 million, with overseas spending by Chinese tourists set to jump 23% to US$229 billion in 2015. By 2020, FBIC Global Retail & Technology projects this figure to rise to US$422 billion.
However, spending in some high-profile long-haul destinations, such as the US, are set to grow at an even faster pace, with a decrease predicted in Hong Kong and Macao as a proportion of overall Mainland Chinese tourist spending, as more travelers venture farther afield in Asia and around the world.
Despite moves to address pricing discrepancies to boost sales in China, Europe will also remain an aspirational travel and shopping destination for Chinese travelers, particularly those on packaged group tours, in 2015.
However, in the long-term, tour groups will make up a diminishing proportion of Chinese overseas travel as a greater number of tourists feel confident about independent travel, whilst corporate groups also gain in popularity as Chinese businesses compete to provide their employees with unique overseas experiences.
With employers picking up their employees’ travel costs, individuals will have a greater propensity to spend money on shopping.
Chinese tourists will also increasingly visit smaller cities, and themed travel, such as trips that feature wine tasting, safaris, golf and other personal interests and hobbies, will increase.
Cruise and self-drive travel are also expected to become more popular as tourists seek new and unique ways to explore the world.
“ Active brand management will be crucial to capture the projected global Chinese shoppers’ attention and spend ”
Implications For Retailers
Despite the shifting sands of currency fluctuations, changes in tax policy and luxury brand pricing strategies, the fundamental factors motivating Chinese consumers to purchase luxury goods outside of mainland China remain intact.
However, international retail flagships and shopping destinations will need to adapt to the increased numbers of independent Chinese travelers expected through 2020.
In particular, the greater numbers of independent travelers may disadvantage big-name retailers who have so far relied on tour groups funneling shoppers to their stores. Hence, retailers will have to work harder to win a more experienced tourist shopper.
FBIC Global Retail & Technology urges retail executives and brand managers to actively manage their businesses globally to mitigate international cannibalization, and focus on active brand management is crucial to capture the projected global Chinese shoppers’ attention and spend.
This could necessitate opening stores in China, building their media presence, working with Chinese celebrities and influencers and/or engaging in an active ground game to reach Chinese tourists.
“The retailers and brands with the highest consumer awareness will be the long-term winners of the hearts and wallets of the all-powerful Chinese traveling consumer.”
There are also factors that could dampen estimates of future market growth, according to the report. Most interestingly, recent moves by major brands to take measures to decrease the price differential between markets, providing fewer incentives to stock up when traveling.
“ The retailers and brands with the highest consumer awareness will be the long-term winners ”
These moves to standardize pricing may gain traction if shoppers begin to expect that companies will reduce or eliminate these price differences, presenting a threat to overseas retail sales.
However, since for brand owners, a sale is a sale wherever it is made, the threat is more acute for shopping centers and multi-brand retailers that rely on tourism to sustain their revenues.
Even with a potentially lower price difference between China and abroad, and with increased access to overseas goods online, Chinese consumers still want to purchase luxury goods overseas for cachet, better experiences, increased levels of trust and access to limited-edition items and merchandise that are hard to find China.
This is an excerpt of the FBIC Global Retail & Technology and China Luxury Advisors (CLA) report 2015. For further details we encourage you to download the full report here.
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