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(formerly Counter Intelligence Retail)

We specialize in global traveler statistics, data driven insight, and activating against trends for all major categories sold in duty free and travel retail.

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The Chinese consumer – what can we expect in 2018 and beyond?

Chinese New Year – one of the biggest sales opportunities of the year for the duty free and travel retail industry– is now over. Retailers will, no doubt, be counting up any revenue gains versus last year.

March 2018 | by Garry Stasiulevicuis, President

There is a good-news story for the DF&TR industry, according to Consultancy Bain & Co, the Chinese appetite for luxury is back to growth. In its review of the global luxury goods market in 2017, it says the personal luxury goods market experienced growth across all regions “driven by more robust local consumption (up +4%) and by strong tourist purchases (up +6%)” with China “a clear top performer”.

Renewed consumer confidence and the emergence of a new – and fashion-savvy – middle class, led to the Chinese consumption bounce-back in 2017 believes Bain. This ensured local luxury buying in mainland China rising by +15% at current exchange rates, to a market estimated at €20 billion while buying abroad also increased. Globally, the share of personal luxury goods purchased by Chinese nationals is now 32%, a 2% rise on 2016. So Chinese spending abroad is back. After a slowdown due to government curbs on extravagant purchasing, a slowing economy – but back on track at +6.9% last year, and a generally more cautious approach to shopping, the Chinese are ready to shop again.

According to another consulting group, RTG, there is a lot to be learnt about what it calls the ‘Awakened Generation’. Born in the late 80s and post 90s, they are more confident in their Chinese identity – clearly evidenced by the backlash to the recent Heathrow WDF activity; they are digital natives and very plugged into what’s going on globally. The episode illustrates something that CiR has previously noted: Chinese travellers live and breathe social media. They rely on it far more heavily than many other markets, and they make judgements about retailers and brands based on other people’s posts, insights and feedback.

This is truer in China than elsewhere. Living in what is still an authoritarian state means searching more widely for accurate information and news. It has become second nature for Chinese citizens – they know where to search and how to!

RTG believes that within the post-90s cohort there is a distinct set of traits unique to China’s college-educated young people: “Somewhere within the tail end of China’s Generation Y and its upcoming Generation Z lies a group of people who stand out as confident, worldly and capable of chasing a future fully their own”.

Retailers who know how the Chinese shop, which trends they are following, and what their specific demands are, will be much more successful than those that simply incentivise through promotions. Treating the Chinese as a homogeneous bunch is also a mistake – their travelling population is very diverse.

These and other factors outlined below – along with some competitive pressures – should be uppermost in the minds of DF&TR retailers when dealing with younger Chinese travellers.

Authentic exploration

This generation is celebrating its identity – perhaps even flaunting it. With that confidence has come the desire to explore the world, but in a more authentic way than their parents. So shopping trips per se are out and genuine ‘country discovery’ is in with off-the-beaten track excursions becoming more common. That also applies to their consumption of luxury goods – the more authentic the message the better, to the point that Chinese Millennials will actively look for alternatives to existing well-known brands.

Shopping frequency

Bain suggests that Millennials are buying luxury goods more often: eight times a year compared with five times in general. That frequency means that retailers – and brands in particular – need to refresh their offers to hold the interest of these fickle shoppers.

Product mix

Finding ways of appealing to younger consumers has encouraged prestige brands to take a new look – and interest in – elements they might have turned their noses up at in the past. T-shirts and sneakers have become a staple for luxury labels and down jackets are also in vogue as Moncler’s latest results confirm. Of course apparel, beauty and handbags account for the vast majority of sales, but DF&TR operators need to move with the times to be seen to be ‘in the know’.

Price competition stiffens

The Chinese government has been encouraging its citizens to buy luxury goods at home by promoting duty free holiday hotspots such as Hainan and arrivals duty free shopping. Lately it has also cut import duties on an array of product groups. A 30% tariff for non-luxury cosmetics has been waived following a reduction in the tax rate for luxury products to 15% in 2016. This may not have had a major impact abroad yet, but the DF&TR channel will have to start thinking about how it prices certain branded goods if the price differential for those items reduces versus the domestic Chinese market.

Opinion leaders and influencers

Social media influencers are prevalent everywhere, but particularly so in China. These so-called KOLs (key opinion leaders) – for example fashion blogger Becky Li – have so much authority they are frequently referred to as ‘buying goddesses’ by the media. They often have tie-ins with brands, but duty free regional retailers have also been courting them. It may not be long before other DF&TR operators around the world jump on the bandwagon if they have significant Chinese flows.  

The value of a bricks and mortar location

Advances of online shopping and e-commerce are not yet a major threat to the DF&TR business – despite the doom-and-gloom stories that abound – because the channel still has a distinct role to play. Online sales to the Chinese are accelerating but, due primarily to fears over fake products and counterfeits, physical stores are favoured when buying luxury items. DF&TR operators should market their authentic direct ties with certain brands to build credibility with Chinese travellers. They need to magnify this USP before they lose it to online retailers or aggregators like Tmall Pavilion and JD Toplife in China – and that is just a matter of time.

Sensorial and live experiences

In line with general trends in retail – and also tied to how physical retail can created a niche for itself versus online – DF&TR operators can go some way to creating sensory or live experiences for Chinese customers. Instant in-store selfies for social media are already common but video streaming platforms such as Livestream are another possibility. Younger Chinese shoppers like to engage this way and luxury brands have noticed so expect to see more immersive events from them – both in-store and online.