Why Chinese Travellers Remain Critical to Travel Retail
The devaluation of the Yuan has caused concern in the markets but all the indicators point to the Chinese traveller continuing to have a significant impact on the travel retail market
August 2015 | Kathryn Martinez, Senior Account Manager, CiR Business Lounge
$498 billion. According to China Confidential, a Financial Times research service, this is the estimated dollar spending figure of outbound Chinese travellers overseas in 2014.
Despite the recent fluctuations in the Chinese economy, a $498 billion outbound market must be seen as a solid sign of China’s continued willingness to travel and spend abroad. And our industry’s retailers and brand owners must remain focussed in order to capitalise on the continuing Chinese opportunity.
No doubt when a currency’s value is lowered, spending power is an immediate causality. But this could be a positive for travel retail. A devalued Chinese Yuan means the imported goods that Chinese tourists buy abroad will remain and, in many instances, be more expensive at home, encouraging buying abroad while travelling to save on inflated prices and taxes.
This means Chinese shoppers will be more discerning with their purchases, favouring the exceptional over the ordinary. Something we know travel retail can excel at across the globe.
Despite recent currency changes, the current outbound Chinese market still only accounts for a very small percentage of its future potential as the Chinese economy remains the second largest in the world.
Digging deeper into the figures, it appears there has been a shift in where the Chinese tourist dollars are spent; choosing travel experiences over travel purchases, pursuing out of the ordinary ventures over generic crowded stores. The Chinese outbound market is certainly maturing and becoming more selective, and travel retail must continue to adjust and adapt their strategies to cater to new expectations and the creation of experiences.
The Future Looks Strong
According to the United Nations World Tourism Organisation, China became the largest outbound tourist market in 2012, eclipsing those of European countries and its Asian counterparts. Forecasting data from CiR's Business Lounge tool predicts passenger numbers to grow by a further 59% by 2020 and an amazing 92% by 2024, very healthy statistics by any margin.
Bank of America Merrill Lynch reports Chinese tourists’ spending power is concentrated in the 15-34 year old age bracket (Millennials), accounting for 63 percent of the total tourist figure. Between now and 2050, China’s average incomes will likely increase sevenfold with more citizens continuing to join the middle class. Therefore, the present outbound market is truly only the tip of the iceberg.
As we know, Chinese tourists are leading consumers of the global luxury trade, greater than any other country. And encouragingly for travel retail, Bain & Co. estimates that 60 percent of Chinese shoppers purchase their luxury goods abroad.
With the recent devaluation, these luxury goods are predicted to become even more expensive within China, making a stronger case for purchases abroad. And as our industry is aware, Chinese shoppers are wary of counterfeit products that proliferate in China and they prefer to buy their goods with confidence while travelling.
Easier Outbound Travel
Although outbound travel is still in its early stages in China, Forecast data from CiR's Business Lounge shows continued and aggressive growth in overseas travel by 2024; Asia, 95%; Americas, 46%: Europe 87%; MENA, 126%. More favourable visa arrangements and supportive policies, along with advances in information technology, are boosting growth of Chinese tourism.
Compared to a few years ago, travel has become much easier for Chinese passport holders. Chinese tourists now benefit from several visa-on-arrival policies, as well as many countries allowing entry without visa. Chinese have been able to apply for longer visas to the US, up to 10 years in the case of tourist visas. The UK and Belgium have simplified their visa application by reducing the process to a one-time visit to visa application centres. India has also done their part by making it possible for Chinese to apply for a visa online in lieu of visiting Indian embassies and consulates, where they endured long waiting periods.
The Chinese travel outbound market definitely shows favouritism to certain destinations; Our own Business Lounge Forecasts affirms 88% of Chinese travel is within Asia, mostly to Japan, South Korea (although recently impacted by MERS) and Thailand. However, European countries and the Americans have seen growth of 10% and 21% respectively, far more than the 7% reported for Asian countries.
Chinese tourists are displaying a great willingness to explore newer destinations and novel cities such as Los Angeles, New York, London and Dubai. As they mature into more discerning travellers, there has been an increase in seeking out unique travel experiences; for instances, journeys into the heart of India or trail tours through US National Parks.
China’s rising incomes, less restricted visa applications and burgeoning flight industry are making flight travel an attainable reality. Retailers and brands should do well to position themselves and their offerings to provide distinctive experiences and tailored tours to Chinese tourists.
The Chinese outbound market will continue to spend more than any other, and with this market’s continued rapid growth will come a visible and definite change for the travel retail sector. In no way should brands and retail businesses turn their back on the Chinese outbound market, or else they risk leaving billions on the table. To be competitive, to entice and captivate the Chinese traveller, travel retail needs to understand Chinese preferences and underlying motivations, tailoring products, services and marketing strategies to attract this growing $498 billion market.