Chinese tourists buy Uniqlo, Coach plus makeup, vitamins and milk powder

Thursday 17th, March 2016


Markets are fretting about China’s economic health but it appears Chinese holidaymakers don’t share the same concern about their own finances. And some brands are benefiting big-time.

According to the China National Tourism Association, 120 million Chinese traveled abroad in 2015, up about 20 per cent from 2014. They are venturing further away from the mainland and they are spending freely, splashing $165 billion overseas in 2014, according to the latest data from the United Nations World Tourism Organization.

Xerago comment: The Chinese propensity to spend on a range of products – from fashion to durables to luxury brands – in the home market has been well-documented. Over the last ten years or so, as rising income levels put more disposable surpluses into the hands of Chinese consumers many Western brands have rushed into the Chinese market to grab a slice of the pie.

What is interesting is that Chinese tourists on their visits abroad are now spending just as lavishly. They are conspicuous customers and their appetite for branded products seems immense. It is tempting to explain this away as a repressed need – after all, very few Chinese had set foot outside China until about a decade ago.

A US$165 billion spend estimate by the UNWTO is huge by any reckoning. In comparison, tourists from the Gulf region (GCC) are estimated to have spent a rather more modest US$27 billion in the same period.

Much of this goes on retail purchases, a recent study released by Euromonitor revealed; in France, Chinese tourists spend as much 40 percent of their holiday budget on shopping.

Xerago comment: While the Chinese seem to spend much less than Western holiday-makers – averages range from US$1000 to as high as $15000 – it is the sheer numbers of Chinese who have begun to travel abroad that has begun to make all the difference.

One recent estimate suggests that nearly 100 million Chinese travelled outside the country. A vast majority of these trips are to Hong Kong and Macau, two regions that are controlled by the mainland. Other popular destinations in the vicinity are Singapore and Australia.

They are not shy of pricey purchases, according to an October 2015 report by consultancy Bain. Despite a slowing local economy, Chinese consumers remained the largest group of buyers of luxury goods, accounting for 31 percent of global purchases.

Xerago comment: China presents an interesting contrast to the other Asian biggie, India. Some thirty to forty years ago, most Western brands were aspirational ones in India and they were desperately sought after from family and relatives returning from overseas. That pattern changed with the onset of liberalisation.

Indians though continue to be value-oriented buyers. Conspicuous consumption is still largely an urban phenomenon and has not reached the levels being witnessed in China. It is no surprise that premium and luxury brands have experienced a boom in China, although that appears to have slowed down a bit in recent months with the economy going through a painful process of re-adjustment.

“Undoubtedly, Chinese consumers play a primary role in the growth of luxury spending worldwide,” Federica Levato, principal at Bain and co-author of the study, said.

Xerago comment: Apple is perhaps the most visible example of a brand that has tasted massive success but there are dozens of others ranging from brands like Prada to Gucci, Louis Vitton to BMW. The categories are diverse too.

The paradox here appears to be that Chinese brands in certain categories such as smartphones are positioned as value offerings. However, the market has evolved sufficiently enough to embrace an aspirational brand like Apple. It is not surprising then that Chinese handset makers like Xiaomi, LeEco, Huawei and others are now tweaking their product strategy to emphasise on high-end phones.

“High street” brands also remain popular but retailers don’t benefit equally, other research found, with some unexpected brands carrying particular cache with mainland buyers.

Sales at Prada and its counterparts in Asia may have been hurt by the double-whammy of an austerity drive and graft crackdown in China, but luxury shopping is still top of the shopping list when Chinese travel to France and the U.S., Euromonitor wrote.

Xerago comment: Many Chinese, the wealthy in particular prefer to shop abroad to escape the luxury taxes that are imposed domestically. The lure of French and other fashion marques and being able to shop for the season’s latest trends is perhaps too strong to resist. This has an important lesson for luxury brand marketers who need to continue to invest in their brands to remain relevant. Luxury always has a timeless appeal and is not subject to the whims and fancies of macro-economic changes.

Chinese shoppers also head for popular local brands, depending on their destination.

In Singapore, local fashion label Charles & Keith is a popular choice, as is cosmetics retailer Sa Sa in Hong Kong, Fast Retailing’s Uniqlo in Japan and handbag-maker Coach in the U.S., according to Singapore-based digital data firm 6Estates, which analysed data from nearly 300,000 conversations on Chinese social platforms and travel websites in the fourth quarter of 2015 in order to discern which brands were the most favored.

More unexpectedly, not-so-fashionable synthetic footwear retailer, Crocs, is a winner with Chinese tourists in Singapore.

Xerago comment: While the Pradas and Hermes of the world benefit from the well-heeled Chinese, other mid-market brands benefit from the rub-off effect. The Chinese are merely coming to the attention of businesses everywhere on the strength of sheer numbers. The trend seems to echo the refrain common amongst Londoners after WWII when large numbers of American GIs descended on the city. “They’re over-fed, over-sexed and over here!”

And purchases aren’t limited to apparel and make-up.

“Singapore was [also] the only country where food was a hot topic among travelers, with local barbecued pork delicacy brand Bee Cheng Hiang among the top brands Chinese travelers talked about,” said 6Estates chief executive Gary Chin.

Chinese tourists have resumed traveling to South Korea in droves now that last year’s MERS scare has passed (numbers dropped about 2.3 percent in 2015, according to Reuters, but are expected by brokerage CLSA to jump by 28 percent in 2016). This travel is driven in part by the popularity of Korean pop culture, ranging from soap operas and to food, in China as the cultural exports spur tourism and spending on featured products.

Beauty brands are likely to get a boost from the inflow, with producers AmorePacific and LG Household & Healthcare the biggest beneficiaries, said HSBC in a note last week. Some of the preferred brands include AmorePacific’s Sulwhasoo and LG H&H’s Whoo.

Xerago comment: South Korea has become an interesting phenomenon with its export of popular culture that resonates with audiences across the region. This carefully-cultivated strategy of soft power has a positive rub-off effect on brands originating from South Korea. The large Korean chaebols such as Samsung and LG are the obvious beneficiaries, but so too are the smaller businesses.

“I use my mobile phone to research what products to buy in South Korea,” 20-year-old Chinese tourist Liu Yuting told Reuters recently. “Many Chinese girls like South Korean products, because most of them are cheap and cute.”

Food safety concerns reign in China, which means that health supplements to milk powder and infant care products top the shopping lists of Chinese visiting Japan and Australia.

“Japanese consumer health products are seen as much safer compared to similar products that are made in China and as such, tourists want to bring back as many OTC [over-the-counter] products as they can due to the smaller size for transportation and the longer shelf-life,” wrote Euromonitor’s research manager Jared Conway in Tokyo.

In a measure of the strength of the phenomenon, two years ago a popular Chinese blogger recommended 12 Japanese consumer health products that tourists should target. The well-circulated list led to a dramatic growth in sales of the featured products including eye drops, cooling patches and a painkiller.

Sales of baby products such as a diapers are also enjoying brisk sales even in ageing Japan, thanks to Chinese buyers.

In Australia, Chinese visitors who bulk-buy milk powder helped prompt the A2 Milk Company and Bellamy’s Australia to increase production to keep pace with rising demand, noted Euromonitor.

Chinese taste for Australian powdered milk is so strong that supermarket chains Coles and Woolworths last year introduced a four-tins-per-person limit on the power to prevent profiteers from buying in bulk in order to re-sell on the grey market in China.

Australian supplement makers Swisse Wellness and Blackmores are also popular picks with middle-class Chinese consumers, wrote Euromonitor analysts in Sydney; so popular that in 2015 China’s Biostime acquired Swisse Wellness for A$1.67 million ($1.25 million), outbidding two other Chinese firms.

Tropical Singapore may seem the most unlikely place to sell 1,000-euro ($1,111) down jackets but Franco-Italian lifestyle company Moncler operates a popular shop in the city-state, and is a key port of call for many Chinese tourists.

Moncler is also pulling in the tourist dollars from China at its outlets in Japan and Europe, chief executive Remo Ruffini said at the brand’s new boutique in Tokyo last year, according to a report by Women’s Wear Daily.

This report has been updated to reflect that Crocs are made from a synthetic.

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