This week in the news, international hotels are looking to cash in on Chinese domestic tourism, handmade tie maker Drake’s London sees opportunity in China, wealthy Chinese are buying up private islands, Shenzhen is the key to China’s luxury market, and the affordable luxury clothing of France’s Groupe SMCP is catching on in China.
Despite the fervor over the growing spending power of China’s outbound tourists, China’s domestic travel and tourism market has been quietly surging. By 2019, Chinese outbound tourists are projected to spend US$264 billion from 174 million tourists, which has led to a spate of hotel investments by Chinese investors and international hotel brands. Many of these hotel brands are looking beyond China’s first-tier cities, and specifically toward western China. However, China’s domestic tourism market does face challenges. The luxury hotel market in China has struggled with over-supply as mid-level hotels have caught on with middle-class Chinese and business travelers.
Handmade tie maker Drake’s London, which was the chief tie and pocket square maker for the movie Kingsman: The Secret Service, will foray into China this year. Since the release of Kingsman in China in March, the classic British fashion featured in the movie has gone viral on China’s social media sites. So far this year, Chinese menswear retailers have signed contracts for orders of 500-600 ties per year, along with approximately 200 scarves and handkerchiefs. The majority of Drake’s business comes from the wholesale business, which makes up 70 percent of the company’s business. In-store sales account for 17 percent, and the rest comes from online sales.
A growing number of super-wealthy Chinese are buying private vacation islands in exotic locales around the world. Guangdong-based entrepreneur Lin Dong is one such island buyer. Lin has formed an association of approximately 60 island-owners from mainland China. He organized a South Pacific island-buying trip for later this month after Wendy Wei Mei Wu, a former property developer in Auckland, New Zealand, purchased a 217-hectare Island off the country’s North Island coast for US$5.3 million earlier this year. Fiji was the group’s primary destination due to its 300 islands and reasonable land prices.
Shanghai Tang founder Sir David Tang believes that understanding Shenzhen consumers is the key to understanding the Chinese luxury market for foreign brands. Shenzhen has been for several years the center of diagou sellers on the mainland due to the city’s close proximity to Hong Kong and the multiple-entry visas introduced in 2009 for citizens of Shenzhen. High import tariffs, along with currency swings in Europe, and Xi Jinping’s anti-corruption measures have accelerated this diagou shopping trend. To counter the diagou agents and increased spending by Chinese tourists in Europe, companies such as Chanel and Tag Heuer have taken measures to level prices across regions.
Luxury brands may be experiencing sales volatility in China, but affordable luxury companies are experiencing strong growth. Parisian affordable luxury brand Groupe SMCP is seeing strong demand and little signs of slowing. SMCP CEO Daniel Lalonde said, “Chinese consumers love the brands – they like the fit.” Groupe SMCP’s Greater China same-store sales grew in the high double digits in 2014, which has carried over to the beginning of 2015. Chinese shoppers account for about 10 percent of Groupe SMCP’s global sales. A greater number of Chinese travelers are buying from the company’s European stores, according to Lalonde.
image credit: intercontinental shanghai