President Xi Jinping’s austerity push may have discouraged domestic consumption of high-end items, but “the Chinese are not out of love with luxury, far from it,” according to China Daily.
Fortune Character Institute, a research center based in Shanghai, recently reported that luxury purchases within China decreased by 11 percent to $25 billion last year.
But overseas spending by Chinese consumers is on the rise, with a 9 percent increase to $81 billion reported for 2014. Consultancy firm Bain & Company also reports that consumers traveling overseas accounted for 55 percent of luxury spending last year, and that purchases through relatives, friends, and professional agents called daigou made up another 15 percent. Chinese consumers now account for 29 percent of luxury spending worldwide. The entire global luxury market is worth $250 billion.
Other factors besides the government crackdown are encouraging Chinese shoppers to seek out new products abroad. After import and consumption taxes, luxury goods tend to cost more in China than they do in other countries. The abundance of fake luxury items in the Chinese market has also made consumers wary about buying domestically: fake luxury goods in China outnumber authentic items by six to one.
“These fakes find their way onto e-commerce platforms, even boutiques in second- and third-tier cities,” says Tina Zhou of Fortune Character Institute. “Brands don’t have the energy to get rid of these fakes. That is another reason for Chinese people buying in Paris and Milan — they know they are buying the real thing, from the source.”
Poor customer service in Chinese stores is also turning off consumers from shopping domestically. For its China Luxury Forecast 2015, the public relations firm Ruder Finn interviewed 1,616 people, only 19 percent of which said they were “very satisfied with service received on the mainland.”
Chinese consumers are also traveling more than ever, spending $129 billion on international travel during 2014 alone. Higher disposable incomes and fewer travel restrictions are driving the boom.
Hong Kong and South Korea are popular shopping destinations for luxury consumers “because of their proximity, favorable tax initiatives, competitive exchange rates and cultural familiarity.” During the first 11 months of 2014, the number of Chinese travelers visiting South Korea increased by 40 percent to 5.7 million, a 43.5-percent share of arrivals. Chinese tourism accounted for 1.9 percent of total domestic retail spending in South Korea in 2013, a total of almost $6 billion. That number is expected to grow to $29.8 billion in 2020 to comprise 7.7 percent of the national total.
Duty free operations are also taking off with Chinese travelers. Dubai DutyFree currently employs 398 Chinese workers, with another 211 expected for this year. Chinese passengers accounted for about 4 percent of total traffic at the Dubai International Airport last year, a total of 1.35 million travelers. That number grew by 9.7 percent from 2013. Chinese travelers’ spending in Dubai in 2014 amounted to about $230 million, or 12 percent of total sales, with the most popular brands being Lancome, Omega, Longines, Estee Lauder, and Chanel.
London, also, has experienced a surge in Chinese shoppers. In the city’s West End, travelers from China now account for over 20 percent of all spending by tourists. Last February, sales on Bond Street to Chinese consumers “accounted for 27 percent of the total tax-free spending with an average transaction value of 1,500 pounds.” Jace Tyrrell, deputy chief executive of New West End Company, which represents 600 area businesses, commented on the boom in an interview with China Daily.
“There has been a phenomenal uplift,” Tyrrell says. “In 2014, Chinese shoppers accounted for over a quarter of tax-free sales on Bond Street, with visitor numbers from China increasing by 79 percent over the last four years and expenditure rising from 184 million pounds ($284 million; 249 million euros) to 492 million pounds.”
image credit: butz.2013