7 Reasons Why U.S. Retail Can No Longer Rely on Chinese Travelers

For the U.S. retail industry, 2019 will most likely be a year of turbulence, and those retailers who’ve been relying on Chinese travelers for growth might need to change up their strategy. Macro factors, such as the ongoing U.S.-China trade war and China’s economic slowdown, have helped shape this new landscape. Statistics show that the number of tourists coming from China dropped for the first time in 15 years, even though total outbound trips by Chinese tourists still rose significantly.

Meanwhile, multiple U.S.-based brands like Tiffany & Co., Capri Holdings Ltd. (owner of Michael Kors, Jimmy Choo, and Versace), and Tapestry Inc. (owner of Coach, Kate Spade, and Stuart Weitzman) have reported declines in Chinese tourist spending in their U.S. stores. What’s key for retailers right now is understanding exactly how these macro factors have influenced their businesses and how they can adapt accordingly. But alas, there are many reasons why the U.S. can no longer rely on Chinese travelers for growth. Below are Jing Daily’s top-7 reasons:

1. The Chinese economic slowdown

China’s economic growth fell to its slowest pace in nearly three decades this July. Even though China’s economy is still growing each year by the size of the Australian economy, that growth is slowing down significantly, and that has undoubtedly had an impact on overseas consumer spending. Today, consumption now accounts for over half of China’s economy, but spending is decreasing and shifting — more spending is on services but not goods.

2. The continued depreciation of the Chinese yuan

Since August, the Chinese yuan fell by over 1.6 percent to 7.108 against the U.S. dollar, hitting a low last seen in 2008 (and it continues to drop as we speak.) This has weakened Chinese travelers’ spending power, and those who used to spend freely in the U.S. may now consider alternatives in nearby countries, such as Japan and North Korea, particularly for the upcoming Golden Week holiday. The Chinese government’s fix in currency makes Chinese goods cheaper and more attractive and is a response to Trump’s tariff threats. It shows that Chinese policymakers are determined to take a tougher stance during these trade disputes, so retailers should expect the currency swing to continue.

3. China’s narrowed price gaps

In April, the Chinese government reduced the value-added tax to three percent (varies depending on the industry), proving its eagerness to redirect overseas Chinese consumption back into the mainland. As a result, luxury fashion labels like Louis Vuitton and Gucci slashed their retail prices in mainland China. This is a trend that’s already a few years old, and retailers should expect price gaps to keep narrowing.

4. The loss of international Chinese students due to tougher visa policies

Some luxury retailers in the U.S. had been boosted by the country’s strong international Chinese student population, however, as the current administration continues to tighten visa regulations, it has become harder for students and their families to invest in a U.S. education in the hope to become an immigrant. Many of them are now turning to countries like Canada or Australia as alternatives. A 2018 survey by the Institute of International Education (a non-profit research group based in New York) showed that nearly half of the 540 higher education respondents reported a decline in new Chinese enrollments. Because of this, local luxury retailers could suffer in the short-term.

5. The rise of Chinese brands

As China transitions from a manufacturing economy to a consumption one, we’re starting to see the rise of home-grown brands. Luxury brands might not have any direct competitors just yet, but Chinese fashion brands — particularly premium female brands like Erdos, Marisfrolg, and Mo&Co — have grabbed a sizable share of the market. They’ve done this by catering to younger Chinese consumers who take pride in products that are “made in China” as well as middle-class consumers who look for solid value in their purchases and are less interested in chasing big-name foreign brands.

6. 
Brands are embracing digital channels in China

Today, brands are looking for other ways to branch into the local Chinese market. For example, instead of opening new brick-and-mortar stores, U.S. retailers like & Other stories and the D2C brand Everlane have decided to open official stores on the Chinese online retail sales site Tmall. These smaller brands are increasingly opening e-commerce stores in China that connect to Chinese consumers’ favorite payment methods, Alipay and WeChat pay, as a more efficient way to make sales in the country.

7. 
Affluent Chinese travelers now prefer experiential travel to shopping

Meanwhile, the affluent Chinese travelers whose wealth is less impacted by the current climate and are less-price conscious, have undergone a consumption transformation of their own. Research shows that the new breed of Chinese tourist is spending more — 20 percent of luxury travelers have spent over $70,000 (500,000 yuan) on tourism and the number of Chinese High Net Worth Individuals has risen nearly 9 times in the last decade. But these tourists now prefer to spend their money learning about various cultures as opposed to investing in name-brand luxury objects. Therefore, retailers need to alter their presence to impress travelers who are in search of unique experiences.

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Retail, Travel, Travel Trends