Anor Wang, 28, spent four days of her Chinese New Year holiday in Hong Kong, the first time she had visited the city after graduating from City University of Hong Kong and moving to Shanghai in 2020.
But instead of hitting the stores or visiting cultural sites, hiking dominated her trip to the shopping paradise.
“The pricing of luxury goods in Hong Kong and in-store services are not favorable now. I’d rather chill with my friends and explore nature trails,” says Wang.
As Wang notes, easier access to luxury brands at home and a higher Hong Kong dollar to Chinese yuan rate weaken the desirability of Hong Kong’s luxury retail environment among mainland tourists as it was pre-pandemic.
In contrast, offshore duty free sales in Hainan reached 380.7 million (2.57 billion yuan) in the seven-day holiday period, according to the Hainan Provincial Department of Commerce, up 21 percent compared with the equivalent holiday period in 2022 and 329 percent higher than 2019’s holiday.
This disparity presents retailers and brands eager to welcome the return of Chinese travelers with a headache: how to capture the market’s recovery and navigate the new dynamics of travel retail.
Flood gates open?#
Revenge travel and spending hit as expected when China relaxed COVID-19 restrictions in early January, 2023.
For instance, 308 million tourism trips within China were made in the first six days of the Chinese New Year holiday, the Ministry of Culture and Tourism revealed. Duty-paid luxury consumption saw a positive start to 2023 with long queues snaking round luxury shopping malls like Shanghai’s Plaza 66 and Nanjing’s Deiji Plaza.
A resurgence of high-spending travelers couldn’t come soon enough for global luxury players in China, where personal luxury sales slumped 10 percent year-on-year in 2022, ending a five-year run of rapid growth, according to a Bain & Co report released today.
However, the report forecasts conditions will improve toward the end of the first quarter of 2023.
Domestic destinations, and duty-free retail lead resurgence#
Domestic destinations like Sichuan, Yunan, and Hainan, were mainland travelers’ top Chinese New Year holiday picks.
A recent survey of 2,653 consumers in mainland China and Hong Kong by consulting firm KPMG and digital agency Digital Luxury Group (DLG) found that 32 percent of respondents prefer domestic cities as holiday destinations, with cities in Europe and North Asia trailing at 26 percent and 21 percent, respectively.
Hainan came out as the most popular domestic travel destination, with 30 percent of respondents hoping to travel there.
Thanks to its renewed duty-free shopping quotas and travel repatriation arrangements, the tropical province has become a luxury mecca that has attracted leading conglomerates including LVMH, Kering, Richemont, and Prada, to expand their footprints there.
Meanwhile, a duty-free mall in Wanning run by local retailer Wangfujing Group soft-launched in January, and a new duty-free project, funded by Swire Properties and China Duty Free Group, is in the works for Sanya.
Given its competitive pricing of luxury products, Hainan will be top-of-mind for consumers who don’t intend to leave the country for the time being but are looking to purchase luxury items cheaper, and the area will stand to gain, says Iris Chan, Partner & Head of International Client Development at DLG.
To tap these opportunities, “brands should continue to strengthen their existing partnerships with licensed retailers while also exploring new expansion possibilities with newcomers,” Chan told Jing Daily.
Though big luxury houses have tapped offshore duty-free in China, several top names like Hermès, Louis Vuitton, and Chanel haven’t yet dived in.
Chan adds that for these laggards, “the ripple effect of the duty-free craze in Hainan creates opportunities in the general retail scene and duty-paid travel retail channels – for example, airport boutiques.”
Looking further afield, brands should optimize their channels and marketing strategies for popular tourist cities, especially in emerging markets.
Asian countries first in line#
Tourism-related players from destination marketing organizations to global retailers and brands have been anticipating the return of Chinese visitors.
However, overseas tourism will not recover to pre-pandemic levels for some time, according to many experts.
LVMH chairman and chief executive officer Bernard Arnault forecast that Chinese tourists would not resume traveling extensively before the second half of this year.
Asian destinations are the first beneficiaries of rising Chinese traveler numbers, due to the shorter distances involved and easier travel visa applications.
Southeast Asian destinations Bali, Bangkok, Chiang Mai, Kuala Lumpur, Manila and Singapore were the most popular overseas air travel destinations for Chinese tourists over the holiday, according to online travel agency Ctrip’s data. Cross-border air ticket orders increased by more than four times year on year during Chinese New Year.
South Korea and Japan fell out of favor with Chinese travelers because they imposed a policy forcing arrivals to wear colored tags at airports, while vacations to Europe and North America require longer time commitments.
Chan describes the recent few months as “a transitory period with consumers getting used to the idea of international travel again, as well as sorting out the necessary administrative documentation required for leisure travel.”
To prepare for the upcoming increase of overseas spending, she encourages “local teams to strengthen their ties with global headquarters in order to resume activation and advertising targeting Chinese travelers, or to provide tailored experiences and services to key clients traveling abroad.”
When reconnecting with members of this demographic, it’s important to keep in mind that they are no longer the same as three years ago, adds Chan. Today, the price differential between China and other countries, as well as tax refunds, are not necessarily the leading factors when making purchasing decisions.
Targeting sophisticated Chinese consumers#
Before the pandemic, luxury brands leveraged a common practice among Chinese travelers – to prioritize shopping on their trips.
According to the KPMG and DLG report, travelers rank shopping as the third main purpose for a trip, behind relaxing and experiencing art, culture, and history.
However, nuances exist between travelers’ various consumer personas.
Shanghai-based luxury consumer Christy Ng described her shopping experience at Sanya’s Haitang Bay Duty Free Shopping Complex during the Chinese New Year holiday as “most horrible.”
“There were long queues outside of each luxury store in the mall, which made the environment very nasty and noisy and discouraged me from shopping,” she told Jing Daily. “I prefer purchasing online or at local boutiques and spend my time in Sanya at hotels.”
Consumers with low price-sensitivity like Ng, prioritize good shopping experiences over cheaper prices.
Another nuance is generational. With the rising popularity of wellness and outdoor activities, millennials and Gen Z are embracing a more laid back lifestyle, and prefer to experience local life in different places. As a result, destinations like Yunnan and ski resorts in North China have experienced a boom.
Discerning labels like Dior and Arc'teryx have reacted to this emerging trend by opening pop-up initiatives at travel destinations.
Though luxury companies have adjusted their regional strategies and exerted great efforts to localize and better connect with Chinese shoppers, the lifting of travel restrictions presents fresh challenges as well as opportunities.
As a new normal emerges, players need to rethink their touch points with Chinese travelers and luxury shoppers, and rebalance their marketing and channel strategies accordingly.