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Chinese consumers abroad aren’t just about the shopping anymore

Steven McCord, Head of Retail Research, Asia at JLL

This article was published on LinkedIn on 06 July 2016

The international ascent of the Chinese consumer has been both fast and of immense scale. In recent years, we have observed – sometimes with our mouths open in awe – this powerful group of spenders sweep into overseas markets and swallow up huge amounts of merchandise. All of this activity has driven their spending – relative to global retail sales growth – to grow quickly, rising from a reported USD $129 billion in 2013 to USD $229 billion in 2015. Such huge numbers for the demographic known for “buying out the shop” should come as little surprise, but what we may not realise is that the way Chinese consumers are spending is changing.

Source: Ministry of Commerce, CEIC, Euromonitor.

Breaking old habits 

Chinese consumers are no longer just making a hop, skip, and a jump away to long-time favourite shopping destinations like Hong Kong and Macau. Though they remain huge contributors to retail sales in Hong Kong and Macau (estimated at 50%+ and 30%+, respectively), Chinese shoppers’ obsession with these cities has begun to fade.

Source: CEIC, Nomura research.

As the chart above shows, Chinese shoppers’ shares of retail sales are much smaller for other regional destinations. But, they are quickly rising in Taiwan, Thailand, and South Korea as these places gain traction with Chinese travellers. This data comes from a recent Nomura report, which also highlighted the following trends for Chinese shoppers:

Despite its distance from China, the US ranks second for Chinese outbound tourist spending; nearby South Korea is a close rival.

Source: PWC, CEIC, CNTV and government affiliated data banks from the following countries (Hong Kong, US, South Korea, Japan, Thailand, Taiwan, Australia, Macau, Singapore and Malaysia).

The share that Chinese tourists spend on actual merchandise varies by destination – Thailand and Indonesia are among the lowest, as visitors tend to go to these places for relaxing and cultural experiences, not shopping. Thus, the motivation for travel to these countries differs greatly from city trips to Hong Kong, Macau, and Tokyo, which Chinese travellers target as destinations for splurging.

Source: PWC, CEIC, CNTV and government affiliated data banks from the following countries (Hong Kong, US, South Korea, Japan, Thailand, Taiwan, Australia, Macau, Singapore and Malaysia).

Purchases abroad amount to about 3.5% of China’s total retail sales, and if cross-border e-commerce sales are included, this adds another percent. This represents a significant amount of overall spending.

Source: Ministry of Commerce, iChoice, Nomura research

In our earlier article, “Is the e-commerce industry in China already bigger than the shopping mall industry”, we estimated that shopping malls in China generate about 1.65 trillion RMB in sales per year. This suggests that the merchandise bought by Chinese tourists abroad totals some 0.86 trillion RMB, indicating that these overseas purchases on goods – not even considering services – are approximately half of the amount spent at all shopping malls in China. That is a noteworthy number.

Charting a new course   

Another study from market research company GFK earlier this year revealed that Hong Kong was the preferred destination for Chinese travellers until 2013, when shopping was named as the city’s top draw. But in recent years, tourists are opting for trips further afield that offer historical and cultural experiences in addition to shopping. Now a familiar place for many Chinese consumers due to its close proximity to the mainland, Hong Kong is increasingly becoming a common middle-class destination, and is no longer the go-to place for high-spenders. As a result, total spending in Hong Kong is decreasing despite its rising number of visitors. As Chinese travellers become more sophisticated, we can expect to see greater fluidity in their movement, as directed by two major forces:

1. Exchange rates: as currencies appreciate and depreciate considerably, Chinese travellers will be swayed to certain locations over others. As such, we could see the strengthening Japanese yen contribute to stalled outbound tourism to Japan. The low British pound, meanwhile, is already stimulating a lot of interest in travel to the UK so that lower costs can be taken advantage of. Therefore, “hot” destinations could change swiftly as customers carry out “geographical arbitrage”.

Source: CEIC, Nomura research

2. Social media: popular platforms are increasingly influential on how people live their lives. In particular, WeChat – the Chinese app that operates as a mashup of WhatsApp, Facebook, Apple Pay, and more – makes instant-sharing convenient and easy. This is encouraging people to make posts wherever they go and also helps them keep up with where those in their inner circles are going. Thus, as more Chinese people become wealthier and find themselves in excess of material merchandise, it is the experiences abroad that are starting to matter more.

Supporting factors at play    

Relaxed visa rules in several countries have helped Chinese consumers travel extensively in recent years. For example, Thailand has been offering Chinese tourists on-arrival visas since late 2014 and six-month multiple-entry visas for sixty days since 2015. Since early 2015, a number of countries have also offered more generous visa rules for PRC citizens. Minimum requirements for visas have been lowered in popular destinations like Japan and South Korea, with the latter even offering visa-free stays of up to 10 days in certain areas.

Tie-ins with other purposes have also made certain places more popular than others. For example, the US has fared well thanks to its high number of Chinese students, whose families have strong incentives to make the trip overseas and plan extensive tours across the country.

Once abroad in well-developed markets, Chinese consumers are often impressed by the competitive prices and wide product selection they see, not to mention the quality level of service they receive. This excites and entices them to make the most of their opportunity to buy more overseas.  

Fact or fiction?

We are observing how recent spending patterns for Chinese consumers are starting to reverse stereotypes. A new report by Oliver Wyman further works to dispel myths about the present-day outbound Chinese traveller.

“They only go abroad to shop” Sightseeing was actually recorded as the main motivation for many trips, with shopping taking on secondary importance. This means that travellers are no longer just driven by a good deal, but value the experience of the trip itself. Thus, the experience abroad becomes the ultimate luxury good, rather than a handbag, pair of shoes, or coat.

“They spend indiscriminately” Personal shopping sprees are not the sole purpose for shopping, the study revealed. A large portion of spending is on gifts for others and on items for resale. We can, however, expect purchases for resale to decline, as customs checks are strengthened. Therefore, customers will gradually trend toward purchases for themselves and/or select friends and relatives.

“Independent travellers are quickly replacing groups” The report also found that tour groups and independent travellers are on the rise simultaneously. Moreover, demand for group travel is likely to be sustained by a strong base of older travellers who are accustomed to this style of travel, those with limited foreign language skills, and/or those who prefer not to be bogged down by the logistical planning of a trip abroad.

What it all comes down to

At the same time, while the typical Chinese consumer is changing, it doesn’t mean that they aren't holding on to any of their old habits. The study by Oliver Wyman reaffirmed just how much Chinese consumers love duty-free, spending a third of their money overseas in this area. Cosmetics are the most popular buy, given that prices for these goods are exponentially greater back home. Chinese consumers may be changing their ways, but so long as prices in China continue to be high, we can still expect duty-free shopping to be a significant part of the overseas shopping experience going forward.  Until prices, product selection, and service levels in China improve to the standard that Chinese consumers are experiencing abroad, overseas shopping will remain an important driver of local retail sales across several countries.

Steven McCord is Head of Retail Research, Asia for JLL. He can be reached at steven.mccord at ap.jll.com.