November 30, 2012

Copenhagen Luxury Retailers Face Chinese Tour Guide “Kickback Culture”

“It’s Not A Phenomenon We Want In Denmark”

Copenhagen

While luxury retailers from Vegas to Venice have seen an influx of free-spending Chinese outbound tourists, store managers dealing with tour guides have come face to face with a less glamourous side of the business. According to Copenhagen’s Berlingske newspaper, in exchange for bringing busloads of tourist-shoppers, store owners have reported Chinese tour guides demanding a cut of five to ten percent of sales. While not illegal, and considered par for the course in Hong Kong as well as mainland China, the practice isn’t sitting well with luxury stores in the Danish capital or the tourism association Wonderful Copenhagen.

As Berlingske notes this week:

The practise was an industry secret in Copenhagen until several shops recently spoke out about how they were boycotted by the guides because they refused to pay the cut. [...] “The phenomenon is widespread in countries where there is heavy competition for tourists,” Wonderful Copenhagen spokesperson Peter Rømer Hansen told Berlingske. “It’s not a phenomenon we want in Denmark.”

According to Berlingske, Chinese tourists spent over 200 million kroner in Copenhagen in 2011 and many luxury shops are so reliant on this income that 50 percent of their turnover comes from Chinese visitors.

One shop that refused to pay the cut is Ecco on Østergade in Copenhagen. The store’s manager, Micky Kastoft, told Berlingske that the guides asked for cash in exchange for bringing the tourists.

“We said ‘no thank you’,” Kastoft said. “Ecco already has a strong brand recognition in Asia so many Chinese still find their way in here. But for shops and brands that are less well known it’s more important to pay the guides in order to get the Chinese customers.”

Some of the shops that admitted to paying the guides included the jewellers Klarlund and the watch company Ole Mathiesen, though neither would reveal who much they paid.

But while the guides could earn thousands of kroner on their ten percent cuts from a day of accompanying wealthy Chinese tourists as they buy fur coats or exclusive watches the guides themselves reportedly have to pay tour agencies up to 150,000 kroner for the privilege.

In an attempt to cut back on the kickback culture, Wonderful Copenhagen recently announced a training program for Chinese guides slated to begin next year to boost transparency. Still, not every luxury retailer in Copenhagen is bothered by the practice. As board member Michael Hansen of the retailers association Københavns City Center (KCC) put it, “When guides and shops work together to get tourists into shops, it can only be a good thing. As I see it, it’s a type of marketing co-operation and there is nothing wrong with that. On the contrary.”

Business & Finance / Lifestyle / Market Trends / Travel & Leisure
Tag: copenhagen, denmark, luxury retail, luxury retailer... , More
  • http://twitter.com/christinelu Christine Lu

    Sadly, this has actually become the norm for Chinese travel companies. Especially those that operate group travel. The practice originated with domestic travel in China and then spread to Hong Kong, Macau and Thailand as Chinese outbound travelers began visiting.

    Now that Chinese are traveling farther, we’re starting to see this broken model replicated by Chinese tour companies and guides in Europe and the U.S.

    It’s a broken model because it’s not sustainable. The Chinese travelers are becoming more savvy and brands that are engaging the China market proactively will have their own strategies in place that don’t involve having to bribe a tour guide at the store level to get Chinese to come shop.

    The Chinese customer hates it because they feel pressured. The store manager hates it because it’s a practice they’re not proud of but it helps them hit their sales numbers for the store. The brand hates it because over time it doesn’t look good for the brand. The destination hates it because how would you like to have Chinese experience only high pressured shopping trips when visiting for the first time when there’s so much more such as the culture, food and tourists attractions to see. And actually, the tour guides hate it because as pointed out, it’s the only way they can make money since they’re not paid — and in many cases, pay the Chinese travel company for the privilege.

    For obvious reasons, I have a bias towards wanting to see travel and luxury brand executives move past this practice that everyone knows is happening but no one talks about because my demographic I cater to are already traveling on their own and will not ever do those kinds of tour groups. Brands should take a more proactive approach in marketing and engaging Chinese travelers without having to rely on tour guides. Tourism boards should invest in hiring some of those same Chinese tour guides and training them for retail careers in many of the luxury stores that are really looking for more sales and marketing people who speak Chinese.

    Meanwhile, it’s a race to the bottom as the Chinese tour companies continue to undercut each other on the price of travel packages in order to get more Chinese tourists locked in their buses on their forced itineraries in order to make money from them. There’s no long term vision. It’s just a weekly game of how much commissions from shopping the tour guide can make. They’re never going to see that batch of tourist again so there’s no incentive to be customer centric. It’s sad. But the good news is, it’s not sustainable.

    • chinaluxculturebiz

      Terrific insight — Thanks!

  • Pingback: Chapter 11 – Luxury goods, amenities and art | Great Wall of Numbers

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