Chinese tourist spending slump forces major travel retail rethink [Analysis]

Moves are afoot to rebalance travel retail in Asia. Hainan’s big decline last year and China’s slowing economic growth are prompting brands and operators to think twice about the North Asia market and shift resources accordingly. Pivots to other parts of the region, such as South Asia (chiefly India) and Southeast Asia, are being seen — along with a strong focus on the Middle East for both wine and spirits, as well as beauty. A big move came in November last year when Germany’s international travel retailer Gebr. Heinemann decided to consolidate its Asia-Pacific business. Though the family-owned brand, headquartered in Hamburg, does not have operations in China, much of its revenue in the region — for example, in Australia and Malaysia — is due to Chinese spending, which has fallen compared to pre-pandemic levels. Early last year, Gebr. Heinemann co-CEO Raoul Spanger said at a press conference that spending in these two markets “was still not where we would like it,” even though Chinese traffic was returning. “There will be no new investments in the region for the next 18-24 months. We will make strategic decisions about which markets to focus on and identify areas for growth and efficiency,” the company told Jing Daily. Anemic rebound This decision comes despite increasing connectivity and rising traffic in the region. Although Sydney Airport’s international passenger numbers in Q3 2024 were about 4% below pre-Covid levels, the airport’s CEO Scott Charlton said he was “pleased” with how international passengers were tracking. He anticipates that Chinese passenger numbers will come “very close” to pre-Covid levels by the end of this year. Shanghai-headquartered Juneyao Air became the ninth Chinese mainland carrier to operate at Sydney Airport when it touched down there on December 17 last year, pushing seat capacity between the two countries to 101% of 2019 levels. Even with these positive trends, the company stated, “The expected return of high-spending Chinese travelers did not materialize and is not foreseeable in the near future. This is leading to a significant, lasting decline in turnover in the region, and particularly Oceania.” “The expected return of high-spending Chinese travelers did not materialize and is not foreseeable in the near future.” “We currently see no return to the normalization we long believed in, and we will therefore reassess the basis of our business in the region,” said Spanger in a press release. Marvin von Plato, CEO of Gebr. Heinemann’s Asia Pacific division for seven years, handed over the reins this month to Johannes Sammann, supported by CFO Rajshree Dugar. Together, they will set a new direction for the firm’s operations. Leaner but fitter? By consolidating its business, Heinemann can create a leaner, more resilient, and focused operation to navigate the region’s shifting sands and position itself for concession opportunities when they arise. Another big travel retailer in the region awaiting a China comeback is luxury travel retailer DFS Group, part of LVMH’s retail arm. The company lost its CEO, Benjamin Vuchot, in November last year and has since been led by veteran DFS executive Ed Brennan, who is serving as interim chairman and CEO. Brennan has held these roles twice before in his 25-year career with the travel retailer, but never under circumstances like those today. And he has a lot on his plate. Until September last year, DFS’ sales were still below 2019 levels. In November, the retailer decided not to renew its lease at the historic Fondaco dei Tedeschi in Venice, which had only been in operation since 2016 following a vast and expensive refurbishment of the building. The decision must have been painful, but the intention seems to be to free up resources so the travel retailer can concentrate its efforts in China, specifically Hainan. DFS is tied to a huge new seven-star retail and leisure complex at Yalong Bay with partner Shenya Group. The 128,000-square-meter luxury retail and entertainment destination is being built in an area brimming with five-star hotels, and the beach is said to be the best on the island. It’s the biggest project ever undertaken by the company and now looks like a risky bet, given that sales in Hainan declined 29% YoY in 2024. DFS is holding firm on the scheme because of China’s plans to make the island a full free-trade port by year-end. LVMH Group’s CFO Jean-Jacques Guiony told a media outlet that, as Hainan is set to achieve duty-free status by the end of this year or implement a low-tax regime like Hong Kong’s, DFS is copying what it did in Macau some 15 to 17 years ago, “allowing luxury brands to enter the [Hainan] market in a fully controllable and safe manner.” The sticking point is, as previously reported, brands are becoming ever more wary of the costs associated with operating in Hainan and elsewhere in China — and the risk of not being able to recoup them. They have been scaling back on opening new locations, which means that DFS is taking a big gamble if the climate does not improve. “The market environment for China and travel retail is not one that allows for optimism, and we do not expect to see an increase in sales,” Japanese beauty firm Shiseido said in a strategy briefing earlier this month. That downbeat assessment applied to travel retail in Asia as a whole, not just for this year but also for 2026. In contrast, Japan, the Americas, and EMEA are expected to achieve growth “exceeding market averages.” Stepping away LVMH’s eyewear house Thélios is also eyeing other parts of the world. Thélios’ head of travel retail, Alessandro Eucaliptus, told Jing Daily: “The Chinese are not rebounding as expected, so we are trying to refocus again in regions like Southeast Asia and countries where we can see potential for luxury. We are targeting India as our next new market. Luxury consumers are still there, probably fewer than yesterday, but they are still there.” Other target markets for Thélios include Malaysia and Japan, where Chinese travelers are flocking due to the weak yen. “We need to open our eyes and see that the world is changing. We need to see if we are missing something in terms of the right locations and the right consumers,” Eucaliptus added. While China is not being shunned, it is being viewed with extra caution — and for good reason. On a possible foray into China, Heinemann’s co-CEO and owner Max Heinemann said, “We’ll never say never, but if we did enter, it would be partnership-driven. We’re always open for talks and discussions. I was invited to China several times to get a piece of the pie. The problem is you always get pie crumbs. You won’t see us in Hainan.”

China’s travel retail weakness ripples across APAC

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China’s travel retail weakness ripples across APAC