What will Chinese travelling shoppers do next?
The eyes of the duty free and travel retail business remain focused on the Chinese – despite recent news of their cutbacks in spending and changing attitudes to high-end brands.
February 2017 | by Garry Stasiulevicuis, President
The 15th edition of the Bain Luxury Study in association with Italy’s Fondazione Altagamma, said that the personal luxury goods market in 2016 would be flat – dropping just a touch from €251bn to €249bn. That may not seem like much, but after very high growth from 2010 to 2015, some observers feel that the Chinese spending party is now over.
Can that really be true with outbound travel from China still on the rise, and more of the population crossing into middle class income brackets and keen to go abroad?
“The luxury market has reached a maturation point,” says Claudia D’Arpizio, a Bain partner in Milan. “Brands can no longer rely on low-hanging fruit. Instead, they really need to implement differentiating strategies to succeed. We are already starting to see clear polarisation when it comes to performance, with winners and losers emerging across product categories and segments.”
The point about differentiation is very valid – and just as relevant in a channel like duty-free where we will also see winner and losers. The Bain data show that the global personal luxury market – which travel retailers are most interested and involved in – was expected to decline last year, while the share of sales from Chinese shoppers was set to move down to 30% (from 31%).
The 1% slide in share appears small, but it is significant as it is the first since the global financial crisis. Nevertheless, there remain plenty of opportunities for those retailers and brands that can stay ahead of the trends that are driving Chinese travel and tastes.
CiR has picked out five that we think will be defining for Chinese travellers and their spending patterns in 2017.
1. The Chinese are buying more luxury in their home market
The days of the Chinese spending lavishly per-head when they go abroad are numbered. True, the volume of travellers is increasing – there were 62.8m international departing Chinese air pax in the 12 months to November 2016, and by 2018 the annual figure will be 65.9m (source: www.cirbusinesslounge.com) – but their individual spending power abroad is likely reduce.
Meanwhile there is a trend to spend more in the home market for several reasons. The PRC government’s enforcement of duty free limits for arriving nationals continues; Xi Jinping’s anti-corruption campaign has curbed ostentatious spending; the development of Hainan Island as a duty free haven is luring mainlanders there; and the move towards more airport arrivals shopping – the most recent contract just awarded to CNSC in Chongqing Airport – are all putting pressure on Chinese travellers to shop on their own turf.
2. Leisure cruises will make waves in Asia
Intra-Asia is still where the bulk of the Chinese are headed and www.cirbusinesslounge.com forecasts show that non-mainland China airports like Hong Kong, Seoul Incheon, Taipei Taoyuan, Bangkok Suvarnabhumi and Singapore Changi will all retain lead positions for processing Chinese passengers.
A big change that is coming, however, is the propensity for the Chinese to take cruises in the region. A 2016 Cruise Lines International Association report on the Asian market points to cruise tourism in Asia growing at double-digit rates, Between 2013 and 2016 the number of ships deployed in Asia grew at a 12% compound annual growth rate, with passenger capacity increasing 29.3% annually.
China was the main driver of that growth, adding 770,000 more cruise travellers since 2012 – a 66% CAGR. Last year, 31 cruise brands were active in Asia on about 60 ships – many of which are now more retail focused – and Japan, China and South Korea will have the most port calls.
3. Adaptable service that is bespoke
While the largest share of Chinese will inevitably remain in their region, airports and cruise/ferry lines around the world are still seeing Chinese travellers in growing numbers, and their eagerness to seek out top brands remains. However, these Chinese travellers may not have the spending power of their predecessors so retailers may have to work more flexibly with them to get the sales.
That means having very informed staff whose answers to their often-myriad questions will trip off their tongues, and who can also take some initiatives on pricing as Chinese shoppers like to get a good deal. A customer-centric approach tied to an omni-channel presence – given the Chinese focus on evaluating everything via social media presence or recommendation – should enable airports and/or retailers to be a step ahead of their competitors.
4. Luxury is not dead… but it may become more of a moveable feast
Queues to enter Louis Vuitton, Salvatore Ferragamo or Burberry flagship stores in places like Paris, Florence and London may still exist but there is a cautious outlook from the big brand owners such as Kering and LVMH, even after posting strong sales results in 2016.
Luxury brand owners are increasingly looking to mainland China to develop not just a shop-window presence but a solid sales base, as pickings in their traditional home markets become harder. Salvatore Ferragamo for instance reported 6% growth in sales in China (constant rates) against a -2.5% decline globally in 2016.
As well as developing stores beyond China’s tier-one cities to cater to emerging middle classes, an omni-channel approach is on its way. This year Kering is launching its Gucci.com e-commerce platform in Mainland China while Burberry has also pledged to increase its Burberry.com penetration in Asia.
5. Direct air routes will open up
One issue for Chinese travellers to date has been the relative international inaccessibility of many regional airports – but that is changing. They have had to make do with connections through the hubs of Shanghai Pudong (9.8m international departing pax in the 12 months to November 2016) Beijing Capital (7.5m), or Guangzhou (4.2m), or regional hubs such as Hong Kong and Singapore Changi (source: www.cirbusinesslounge.com).
The next nearest airports for international departures were much further down the list: Chengdu (1.7m) and Hangzhou (1.4m). However, direct route development into Asia and Pacific markets has been rising. For example, Vancouver International had new Chinese services added to Xiamen by Xiamen Airlines, and to Hangzhou by Beijing Capital Airlines last year, while Toronto Pearson inaugurated China Southern flights to Guangzhou – China’s third largest city – in December.
At Tokyo Haneda, astonishing growth from China of 140% in the 12 months to October 2016 is attributable to flights having begun on three new routes out of China, coupled with huge uplifts in seat capacities by airlines already operating flights there. What is becoming clear, however, is the spending ability of these regional city residents is not necessarily the same as those from the richer tier-one municipalities.
A pause for thought…
There are other factors that will also affect Chinese duty-free shopping this year. Negatives to do with terrorism-hit markets look set to stay; currency fluctuations will favour certain destinations (notable the UK due to the weak pound), but not others (due to the weak yuan); and more visa-free or visa-on-arrival programmes will spur the Chinese to try new destinations such as Morocco and Peru.
It is safe to say that, while the Chinese shopper market is definitely changing – and also diluting – opportunities still abound. The issue will be identifying the value of these opportunities and deciding which ones to go after with both hands. At CiR we therefore believe that the Chinese will remain a hugely important nationality for the travel retail channel.
NB. PAX Source: CiR Business Lounge | Advanced Analytics Tool - Data based on Scheduled departing international passengers only. Data displayed for nationalities is based on residency through place of ticket purchase