What retailers should know about Chinese overseas shoppers
QUICK LOOK TO THE TRENDS
· Luxury spending on the mainland will continue to grow at twice the global average thanks to price harmonization and improvements in online shopping, according to research by HSBC.
· Domestic outlays for luxury goods are estimated to grow 12 per cent this year, double the 6 per cent global average, even as the Chinese economy is widely anticipated to moderate, according to the report “Panda Luxury Staycation”, compiled by the bank’s global research department.
· Beijing has cut its economic growth target from 6.5 per cent last year to a range of 6 to 6.5 per cent this year amid headwinds that include the US-China trade war, high debt and a financing squeeze on private enterprises. China’s economy grew 6.6 per cent in 2018, the slowest pace in nearly three decades.
· Current trends suggest that mainland consumers will soon make half of their luxury purchases domestically.
Chinese brands are gaining more and more credibility and popularity, particularly with younger customers. In terms of category, cosmetics continue to sustain spectacular growth despite a proliferation of brands.
Meanwhile, mainland investment bank China International Capital Corporation said there have been encouraging signs of growing consumption in China, helped by strengthening of the yuan, as well as recent government policies to boost the economy.
WHAT’S HAPPENING IN THIS CURRENT SCENARIO
1. Is overseas shopping on the decline or increase?
There is conflicting information about the state of Chinese overseas shopping. Hotels.com’s 2017 China International Travel Market report found that interest in shopping had dropped sharply among Chinese travelers, from 68 percent expressing an interest in shopping in 2016 to just 33 percent in 2017. Interest in experiences seems to be taking the place of shopping, with an 11 percent rise in interest in sightseeing, and a 12 percent rise for eco/green tours. However, these numbers need to be understood within the context of a maturing tourism market, and not necessarily as the end of Chinese shopping – shopping is still 22 percent of the total Chinese outbound travel spend, second only to vacation packages at 48 percent. One shouldn’t forget that the Chinese luxury shopping market barely existed a decade ago, and now represents anywhere from a third to one half of luxury sales.
Growth in Chinese overseas shopping is not uniform around the world. The Fung Global study showed major increases in spend from 2015-2016 in Taiwan (up 70.9 percent year on year) and Hong Kong (46 percent), a moderate 2.3 percent increase for the US, and decreases of 5 percent and 15.8 percent for Thailand and South Korea, respectively. Within one country, there could also be fluctuations that are tied to other trends in Chinese tourism. The rise of adventure and eco-tourism might seem at odds with shopping, but it doesn’t have to be. For example, the Salt Lake City mall, City Creek Center, has been able to capitalize on the rise of Chinese tourists that pass through Salt Lake City on their way to Yellowstone National Park. The shopping center has worked to make itself Chinese-friendly and promote itself to Chinese tourists, with positive results. As Chinese tourism to places like national parks develops further, retailers located in places that might not be seen as first-choice shopping destinations could receive unexpected benefits.
2. High growth potential for niche products
Much of what is written about Chinese overseas shopping centers on luxury items, but the market is much more diverse than that, and varies by country and region. For example, tourists to Japan are most likely to shop at malls, for electronics, and at pharmacies, whereas those in the US shop for software, duty free and at bookstores, and those in Taiwan center their purchases on clothing, with tailors and women’s clothes in the top shopping categories. One area with room for growth is health – supplements and vitamins are currently purchased by nearly a quarter of Chinese tourists.
Even in terms of luxury items, shopping is changing quite a bit. Anti-corruption campaigns in China at first benefitted foreign luxury retailers, as Chinese instead traveled abroad to buy their luxury items.
There are other changes for the Chinese luxury market, too. Chinese are now less likely to purchase luxury gifts and more likely to shop for themselves abroad. The growing interest in experiences for Chinese travelers also suggests that retailers could maintain and grow sales among Chinese by offering unique shopping experiences that can only be found abroad.
3. Improved payment methods are crucial
The 2017 CITM report identified payment facilities as the area that most needed improvement for hotels overseas. This goes for other businesses as well. At the very least, retailers need to accept UnionPay, the system used for card payments throughout China. But this isn’t enough – retailers will also need to start accepting Chinese mobile payments via Alipay and WeChat Pay. Both systems have proliferated rapidly in China in the last few years, but there is very low penetration abroad.
Alipay, which is owned by Chinese e-commerce giant Alibaba, is currently the preferred choice of foreign retailers, offered by 75 percent that are equipped for Chinese mobile payment. But WeChat Pay, owned by internet company Tencent, is connected to China’s most popular social media platform, with 938 million active users and counting, which creates valuable opportunities for retailers who may also use the app’s subscription accounts, service accounts or new mini programs.
4. How to use social media to support overseas sales
There are many ways that this can benefit retailers. At a basic level, brands with a strong social media presence, such as South Korean cosmetics brand Laneige, can translate brand familiarity into increased duty-free sales – this is where Chinese shoppers overseas spend the most, according to the Fung Global study. Shops can also offer WeChat subscription or service accounts to increase brand familiarity and advertise their promotions, and WeChat mini programs can be used effectively in conjunction with location-based services to help drive online to offline business by telling users where the brand’s closest outlet is and what’s on sale there.
Apart from WeChat and Weibo, there’s another app specifically aimed at shoppers, called Xiaohongshu. It was launched in 2014 as a review and recommendation app for Chinese shoppers abroad, with a Pinterest-style format, but it’s since shifted its focus to shopping in general, with an e-commerce platform selling imported cosmetics and other products within China. While less travel-orientated than it started out, Xiaohongshu does provide a good opportunity to connect to Chinese shoppers.
5. The Chinese overseas retail market can be volatile
Although Chinese shopping overseas is likely to continue its steady growth, at least for the next few years, it’s important to keep in mind that the market can change quite rapidly due to world events. This can bring higher retail sales, such as the Chinese shoppers that have flocked to the UK to take advantage of the weak pound, but it can go the other way, too. An extreme example of the volatility of the Chinese market is South Korea, one of China’s biggest overseas shopping destinations. In March 2017, the Chinese government banned Chinese tour groups from going to South Korea, in response to the Korean launch of a US missile defense system. Tourist numbers from China dropped by two thirds in April, and sales were down by 40 percent in South Korea’s Lotte duty free, which makes 70 percent of its sales from Chinese tourists.
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