Top Takeaway: No Brand Can Rest On Its Laurels
With the recent release of the European Tourism Q1 2013 report and the summer season kicking into high gear, prestige brands are closely watching Chinese tourists and monitoring their profiles and spending patterns for signs of continued growth and, in the other direction, effects of the government crackdown on corruption.
China Luxury Advisors has frequented several of Europe’s hot spots for Chinese tourists during the last few weeks–London, Paris, Milan, Cannes, Vienna, Geneva, and even unstable Istanbul–and spoke with a number of industry insiders and tourists on the road for the latest insights to the Chinese customer.
As always, the Chinese consumer market is layered and nuanced, so there is no simple answer to any question, but several important trends have recently emerged:
Chinese tourists are seeking new destinations and branching out from the usual big cities and the novice-level “must-sees” in a harried ten-day, ten-city itinerary. The European Tourism Board forecasts that southern and northern Europe will enjoy the fastest rates of growth from Chinese tourists by 2017 with growth of 48.9 percent and 36 percent compared to growth rates of 30.7 percent and 24.2 percent for eestern Europe and central/eastern Europe. By 2017, it is expected that Chinese arrivals to western Europe will reach 4.5 million, central/eastern Europe will reach 1.8 million, southern Europe will reach 625,000 and northern Europe will reach 505,000. Southern Europe is predicted to increase its share of the Chinese long-haul outbound market to reach 2.8 percent in 2017, while western Europe and central/eastern Europe will see their shares of the overall market decline and northern Europe’s share will stay constant.
Chinese tourists looking for more off-the-beaten-path locations tend to be more experienced travelers who are on their second, third, or more times out of the country. These tourists are less likely to travel in big groups and may not be on the “shopping-frenzy” that first-time tourists tend to display. Look for these travelers in areas such as the Riviera, French wine regions, Spain, Ireland, Scotland, Prague, Vienna, Berlin, and even Istanbul, a frequent stopover on trips from China to Europe on Turkish Air.
First-time tourists to Europe are on the rise. As China’s average discretionary income continues to rise and the middle class expands rapidly, more and more people are taking their first trip to Europe and are stalking all the typical haunts in Europe. First-time tourists tend to engage in somewhat frenetic spending, and to frequent brands that are already well-known in China at the most prominent “famous” shopping locations.
A recent study by Bain & Company predicts that by 2022, more than 75 percent of China’s urban population will be making a middle-class income (60,000 to 229,000 renminbi, or $9,000 to $34,000 per year) with purchasing power similar to the average incomes of Brazil and Italy.
As this group of consumers continues to make first-time visits to Europe, expect to continue to run into crowds of Chinese tourists at Burberry counters in London and Herme(accent)s boutiques in Paris, and of course waiting in long lines to submit their VAT refunds at the airport.
Many of these first-time tourists are on large group tours, and more and more are coming from second-tier cities in China. Consumers there are still focused on bling and logos, and have not yet expanded their love of luxury to include the more subtle variations, as is the case with consumers in Beijing and Shanghai.
“Mega-spenders” are fewer than last year. While the volume of Chinese tourism traffic has increased in 2013, some luxury brands have mentioned that they don’t see the “mega-spenders” showing up and spending as they have in the past. This is likely due in large part to the crackdown on government corruption in China and the corresponding major slowdown in government travel and lavish gifting. (In a previous article, I cited the example of second-tier cities’ government travel budgets as being 10 percent of last year’s budget.) It is estimated that government inspection trips made up close to 20 percent of Chinese trips to Europe in the past. It is also likely that these mega-spenders are going to new destinations and have their sights set on different brands and products than they did last year.
Global Blue, Europe’s largest tax-free shopping company, explains:
Detailed granular analysis of where this slowing of Chinese globe shopper spending has occurred reveals it is very specifically located: the reduction in spending is almost entirely due to a reduction in the number of Very High Spending Clients in a few, very high-end stores almost entirely concentrated in Singapore, Germany, Switzerland, and South Korea.
The categories most affected are high-end watches and jewelry stores, as well the most expensive leather goods and travel accessories stores.
To be clear, the Average Spend in most stores is around the same as the same period in 2012, or slightly higher, and the number of transactions is also up, but the number of Very High Spending globe shoppers (those spending more than €5,000 per transaction) has reduced.
Results are a mixed bag. Results from luxury brands in Europe seem to run the gamut, with some such as Mulberry reporting lower sales to Chinese tourists in Europe while others such as Burberry reporting positive trends from Chinese tourists.
Even among the top luxury brands, results from Chinese tourists were mixed depending upon location. It is clear that no brand can rest on its laurels and assume that Chinese tourists will continue to flock to their stores, no matter how strong the brand or how good the location. The typical Chinese tourist profile is changing rapidly on a city-by-city and country-by-country basis, and what worked last year will not necessarily work this year. Retailers that are doing best are making efforts to attract, convert, and retain the Chinese tourist and investing and incentivizing the players in the travel trade market, as well as the increasing numbers of individual tourists traveling around Europe.
Though it is difficult to generalize about Chinese tourists, one thing is clear: their full effects on the European tourism market have yet to be seen and will continue to evolve and grow for the next several years.
Chinese tourists’ arrivals in Europe are expected to increase to 7.4 million by 2017, representing a 1.7 million increase from 2012’s 5.7 million arrivals, or a 30 percent increase. And, with Chinese tourists representing the largest spenders in the world, making more than 60 percent of luxury purchases outside of China, their impact on luxury sales will be even more substantial than their volume of arrivals.
Renee Hartmann is co-founder of China Luxury Advisors, a boutique consultancy that helps luxury brands and retailers to develop China-related strategies, ranging from market entry to social media to attracting, converting, and retaining Chinese tourists. Renee has been focused on the China market since 2000, with a specialty in understanding and selling to the emerging Chinese consumer. She has worked as a brand owner, retail operator, consumer researcher, public relations specialist and market entry strategist in China. Follow China Luxury Advisors on Facebook and Twitter.
(Opinions expressed by columnists do not necessarily reflect the views of the Jing Daily editorial team.)