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When it comes to the market for luxury goods, “China is the rising star,” according to Claudia D’Arpizio, a Milan-based partner with Bain & Co., the consultancy. Luxury sales in China currently represent 10% of the global market. CLSA, a leading Asian investment bank, estimates that by 2020, China will be the largest domestic market for luxury goods in the world and will account for 44% of global demand. Consumption by Chinese consumers abroad has helped fuel this growth in more mature markets in Europe. CLSA and other firms estimate that currently more than half of Chinese luxury spending occurs overseas. Some Chinese tour groups travel to France and Italy for the sole purpose of luxury shopping.

 
“After decades of deprivation and conformism, Chinese consumers regard expensive consumer goods as trophies of success,” reported The Economist magazine. “In public, they show off. In private, they pinch pennies.” The demand for luxury goods has increased for a number of reasons which include a rapidly expanding disposable income, the increasing sophistication of Chinese consumers, and rapid urbanisation along with growing wealth in second- and third-tier cities.

 
Still, the typical Chinese luxury consumer differs greatly from their counterparts in more mature luxury markets. Luxury items in China are generally purchased as status symbols and not necessarily because of taste, sophistication or service. CLSA estimated that in 2010, 16% to 17% of Chinese consumers bought luxury goods as gifts, with handbags, clothing, watches and jewellery being the most popular. Within the accessories segment, 37% of purchases were made for gifts, a far greater proportion than in other markets, with only the newest and most expensive products being acceptable.

 
According to a recent article in the Hurun Report (a Chinese publication similar to Forbes), the average Chinese millionaires are 15 years younger than their counterparts in other parts of the world, and their number has been rapidly increasing to nearly one million in 2010. Finally, China’s luxury goods market was previously dominated by men, due to the importance of the gift-giving culture in business. As more women have entered the workforce, the proportion of luxury goods they purchase has risen to more than half the market total.

 
Why Chinese Consumers Shop Abroad

 
Despite the increase in Chinese luxury goods consumption, luxury brand boutiques in China attract much less traffic than managers would like. Compared to the crowded Apple store next door, Louis Vuitton’s (LV) flagship in Shanghai is empty. More and more, Chinese luxury consumers are choosing to do their luxury shopping abroad. In recent studies, Bain found that more than 50% of luxury goods purchased by Chinese consumers in 2010 were made overseas. A study by PATA/Nielsen found the average Chinese tourist in Europe purchases US$1,359 of goods per trip – more than any other nationality.

 
This is especially striking considering that most economists believe the renminbi is significantly undervalued. According to Xiao Qianhui, general manager of the Shanghai-based Spring International Travel Agency, most Chinese tourists consider shopping for luxury goods the main purpose of a trip to France. “Sometimes one Chinese tourist will even buy up to 20 Louis Vuitton bags at one shop,” he said. A recent survey commissioned by travel service company Global Blue found that many Chinese tourists complained about not being able to spend everything they had planned to when they were abroad.

 
The main reasons Chinese consumers cite for shopping abroad are lower prices due to China’s high luxury taxes, better selection and greater “show-off” value. China’s import tax for luxury items ranges from 20% for luxury bags to 50% for cosmetics, which, when combined with additional local taxes such as the 17% value-added tax, leads to a significant premium on these goods. Accordingly, the prices of LV products sold in Shanghai are about 35% higher than those sold in Paris. The Chinese government is considering reducing luxury tariffs on the mainland to spur domestic consumption, seen as necessary to reduce China’s dependence on exports. In the meantime, China has sought to address this price differential by more strictly enforcing existing legislation that imposes retroactive taxes on luxury purchases made outside China. However, the country still loses billions in U.S. dollars annually on uncollected customs duties.

 
Chinese consumers also prefer to shop outside China due to a perception of greater brand availability and better product selection. Interviews with shoppers at Beijing’s China World Mall, which houses popular luxury brands such as Louis Vuitton, Hermes and Gucci, showed that many female shoppers prefer to shop abroad because they believe the same store abroad will carry, not only a broader range of products, but also newer products. Many Chinese also believe that the luxury shopping experience is better abroad due to superior customer service and a greater selection of brands, including many not yet available in China, such as Alexander Wang and Christian Louboutin. However, LV stated that it offers the same product selection regardless of location. In interviews, an LV executive noted that products offered in China are the same, and only the quantities stocked are adjusted for the Chinese market. Despite the uniform product offerings, Chinese consumers still believe the selections in Chinese stores are inferior to those of stores abroad.

 
Finally, travelling has become part of the luxury lifestyle in China and is considered a status symbol: there is greater prestige in being able to say you purchased your bag at the place of origin in Paris rather than at a branch in Tianjin. The Chinese National Tourism Administration noted that in 2010, more than 57 million Chinese travelled abroad and spent US$48 billion at overseas destinations, a figure that is expected to grow 17% annually over the next decade. Key forces behind this growth include increasingly convenient transnational payment methods and a stronger Chinese currency, which have made outbound tourism and associated overseas purchasing easier and cheaper. In particular, with the resources to travel overseas, many newly rich Chinese are eager to show off their wealth through high-value consumption.

 
The Appeal of Louis Vuitton


Louis Vuitton, in particular, is a favourite shopping destination for Chinese abroad. In fact, Chinese consumers have become LV’s largest consumer group worldwide. While this influx of demand has been a welcome growth stimulus for LV Europe, it has also presented its own unique challenges.

 
At LV’s more well-known locations, such as those at Galeries Lafayette and Avenue des Champs-Elysées in Paris, it is not uncommon to find queues of more than 20 tourists from China waiting to purchase merchandise. This number swells dramatically with changing exchange rates, which, when combined with Chinese consumers’ different shopping habits, have led to significant challenges for LV Europe in managing inventory. In the summer of 2010, when the renminbi was at its strongest against the euro, LV France burned through three months of inventory in just one month. As a result, through the end of November, LV was forced to limit to two the number of leather goods customers could purchase daily so that the store could save stock for the Christmas season. Several key Paris locations, including LV’s flagship, began closing an hour early to slow sales.

 
In addition to their numbers, the shopping habits of this large new consumer group differ greatly from those of LV’s traditional customers. More than 95% of Chinese tourists arrive on tour buses, leading to a quick spike in customer volume and posing a challenge for staff charged with providing premium service to each individual shopper. Also, while LV has traditionally posted its strongest sales during the fourth-quarter Christmas shopping season, the increase in Chinese consumers shopping abroad has caused sales to shift heavily toward the weeks leading up to the Chinese new year in late January or early February, resulting in a massive spike in sales in the first quarter. This has created challenges to LV as it tries to manage the supply-chain implications of a shift in seasonality.

 
Blistering Chinese demand, combined with factors such as purchasing limits and the high luxury tax at home, has also led to the growth of a large grey market for LV products. Managers at LV’s Galeries Lafayette location were recently dismayed to learn that the two young Chinese women who held the top two spots on their VIP list, each spending more than €500,000 (US$700,000) per year, were selling them at a profit on Taobao.com, China’s version of eBay.

 
Quite naturally, the droves of Chinese shoppers who purchase LV products overseas are of concern to LV China. LV China wants China’s new luxury consumers to shop at home, not only to increase domestic revenues, but also because the company feels it can better control its “touch” in the home market: having more Chinese staff with a better understanding of how best to serve Chinese shoppers makes LV better equipped to shape the customer experience it wants its Chinese customers to have.

 
In the meantime, LV has moved quickly to adapt to, and better serve, this growing customer segment. At its Paris locations, Chinese shoppers can find numerous Chinese-speaking staff, all of whom have been trained to better meet Chinese needs and better handle the spikes of tour-bus traffic. According to July Azoulay, marketing manager of LV, the LV flagship located on the Champs-Elysées hired multilingual (Chinese and Russian speaking) staff to meet and greet its clients.

 
At home, LV China has developed innovative ways to strengthen its relationship with this high-priority customer group. In Shanghai, three stores exemplify LV’s customer segmentation and targeting strategy: the LV flagship on bustling Huaihai Road attracts young, aspiring buyers and prominently displays lower-priced “accessible luxury” items. Across the river in Pudong, LV’s location in the main business and financial district has a “more masculine décor,” as described by some LV employees, and caters more directly to businessmen shopping for gifts. In Plaza 66, Shanghai’s premier luxury shopping mall, LV is building its largest store worldwide, a Maison store, focused on educating shoppers. It will feature the first LV atelier [workshop] outside France, providing an ultra-premium shopping experience where craftsmen from Europe will demonstrate the traditional methods used to create LV trunks, watches and bags. In 2011, in addition to experiencing LV in stores, people in Beijing queued for hours to learn about the history and evolution of the brand at LV’s Louis Vuitton Voyages exhibit at the National Museum of China.

 
Other initiatives LV has taken to strengthen its relationship with Chinese consumers at home include investing heavily in staff training to provide customers with a premium shopping experience and demonstrating its commitment to its Chinese customers through a new advertising campaign featuring the Taiwanese-Canadian model Godfrey Gao – the first time LV has used an Asian male to showcase its products.

 
Going forward, LV and other similar luxury retailers need to continue to focus on their ability to connect with customers in China. LV’s segmentation strategy in its brick-and-mortar stores in cities such as Beijing and Shanghai is a good start. For those customers already shopping abroad, LV would benefit from sharing customer data across regions so that a VIP shopper in Europe is recognised when he or she enters a local LV store in China.
LV can further strengthen its ability to connect with young Chinese shoppers via its online marketing efforts. Just as luxury brands in China generally have chosen not to tailor their products or store designs drastically to the local market so as to preserve the perceived authenticity of the brand, they generally have not tailored their online presence to better suit this new media market. However, the role of the Internet is far more important in the young Chinese consumer’s shopping process than it is in other markets.

 
A study by Bain found that the number of Chinese consumers who rely on the Internet, especially social media such as bbs forums and micro-blogging, as a means of researching luxury goods and brands has increased by 30% since 2006. In addition to learning LV’s history and brand message, young Chinese shoppers want to know how to use and wear the latest styles and to discuss trends with their peers. Incorporating the educational and interactive components of LV’s Maison stores into its websites, e.g. through a well-designed style guide, can help LV connect with and influence customers earlier in the purchasing process. Simple directions as to where these items can be purchased locally will also help mitigate the misperceptions of inferior selection and older products at home.

 
The number of Chinese travelling and shopping abroad will only continue to grow, and LV’s global operations should continue to adapt accordingly. With the increasingly competitive luxury market in China, LV China will need to work harder to maintain and grow market share by winning the loyalty of new waves of young Chinese luxury consumers.

 

This article was written by Jane Fung, Charlotte MacAusland and Grace Chang Mazza, members of the Lauder Class of 2013 and taken from http://knowledge.wharton.upenn.edu/article.cfm?articleid=2901

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As the US Visa discussion continues (described in an earlier post), more experts are chipping in their own takes on potential benefits of eased rules, sizing up the volume and impact of the Chinese tourists’ colossal spending.

Earlier this month, the U.S. Travel Association urged the government to overhaul its visa system, saying it serves as a virtual “keep out” sign.

Chinese travelers are among the world’s biggest spenders. snapping up Louis Vuitton LVMH bags and jewelry at Tiffany & Co in the world capitals they visit.

They are set to overtake their Japanese counterparts as the second-largest luxury spender behind the United States within a few years.

“Quite frankly, the Chinese tourist is today the dominant influence in the gateway cities,” Polo Ralph Lauren Chief Operating Officer Roger Farah said on a call with Wall Street analysts on Wednesday.

“Our sales at duty free are mindboggling,” said Bernd Fritz, chief executive of the perfume company Coty.

source: http://www.reuters.com/article/2011/05/26/us-luxury-summit-visas-idUSTRE74P6RO20110526

Dr. Adam Wu, chief operating officer of China Business Network, attended last week’s Caribbean Hotel & Tourism Investment Conference in Montego Bay, Jamaica, visiting a region where the Chinese government has already made several substantial direct investments and plans more.

Wu said Chinese tend to travel in groups and like to sightsee and visit multiple destinations. He offered some the following tips to those seeking to cater to the Chinese market:

• Convey your message in Chinese. While 60 million Chinese earn an annual income over 20,000 USD, only 10 million people can speak English.


• It’s best to market online (incorporate your site onto World Travel Online). Most Chinese travel professionals depend on the Internet to research and book travel. Plus, there are more Internet users in China (457 million) than the U.S. has in total population (311 million).

• The Chinese population doesn’t generally have access to the Internet accessed by the rest of the world, so marketers need to use the China Wide Web, the country’s own Internet.

• Marketers need to educate Chinese operators on (unfamiliar to them) local brands.

[tweetmeme source=”astronauttravel” only_single=false]

Sources:

http://www.hotelnewsnow.com/Articles.aspx/5534/Chinese-supply-demand-making-waves-in-Caribbean
http://lhonline.com/news/china_caribbean_investment_development_construction_tourism_marketing_0516/

The Wall Street Journal reports that spending of Chinese tourists increased by 64% last year, over 2009. Spending for China thus broke into the $1 billion category in 2009, along with Australia and France (but the latter two countries’ increases were much less spectacular: up 32% and 6%, respectively).

See the article here.

By means of this post, we invite you in on a conversation with Mr. Josef Stockinger, Director of the Austrian National Tourism Office in Beijing, who outlines the major trends among Chinese outbound tourists.

The New Trend for Chinese Travelers

In addition to (high velocity) group travel and (free spending) delegation travel, individual travel is the newest emerging trend, rising in popularity among the educated and higher-income bracket Chinese. These intrepid applicants pass Austria and other Schengen states’ rigorous visas requirements, including personal interviews at the embassy. For maximum enjoyment and safety, they prefer to travel with family and friends and plan their itineraries meticulously, sometimes by the hour (!), with plenty of “face giving activities” (seeing famous buildings and sites). For example, these tourists go to theatres and concert halls, but not for a performance.

How would you like the Chinese to experience Austria?

Mr. Stockinger would like to see Chinese tourists interact with the locals, taking the opportunity to have a conversation in a coffee shop, for instance. And to take a moment to relax, not dashing from place to place.

While the mind shift is still in the future before tourists believe that a vacation can be a vacation, hopefully one day, after paying the VIP price for a European coffee, and after having finished the cup, the visitor will go on to take a quiet moment to linger and mellow… and to take in the ambiance that he or she has just paid for.

a mellow moment

We thank you for taking a quiet moment to linger upon our blog. We hope you enjoyed this as well as the first and second posts in this series.

This article reports on an interview with Mr. Josef Stockinger, director of the Austrian National Tourist Office in Beijing. It is the second in a three part series, and follows last week’s post.

The typical modes of travel popular among Chinese tourists today is knowledge indispensible for anyone in the tourism sphere, and very revealing.

Chinese Tourists’ Preferred Modes of Travel

The first is group travel, mostly trips in the flavor of 10 days and 8 countries. These are largely first-time Europe trips or life-time trips, and are incredibly cheap trips, where money is made on shopping commissions. There are some countries that are always included on these trips’ itineraries: Italy, Switzerland, and France. Then there is the golden triangle of European cities: Prague, Budapest, and Vienna. Few trips are mono-destination trips.

Then there is delegation travel, which is business tourism, requiring formal invitations. These tourists have characteristic shopping preferences. They love picking up foreign produced brand names, rather than the products that are produced in China. Image is what counts. As stark evidence of this fact, there is a factory in Italy in Prato, where 50,000 Chinese are employed making un-China (!) origin brand name products.

In Mr. Stockinger’s estimation, most European countries don’t have the budgets for building image. Rather it’s celebrities that create impressions. Figures such as David Beckham do much more than PR campaigns to promote their countries.

Tourism Line-Up of the Countries of Europe

In the conglomerate of Europe, each country has its unique tourism image and rank. Number one among tourism destinations is France, renowned for its products of fashion, perfumes, wine, and romance. Second reigns Italy, famed for fashion. Third is Germany, known for cars, and for the chance for intrepid tourists to step onto the autobhnen. Fourth is Switzerland, known for watches and chocolate. (Belgian chocolate is in another, non-competitive category, being more refined.) Switzerland additionally adds appeal by accepting the Schengen visa and having royalty, which is good for gossip. Austria is about the number five destination. It’s image is based on music, Swarovski crystals (though originally of Bohemian origin), Princess Sissi, and the Sound of Music. Britain earns points for attracting many Chinese students.

A strong influence on tourism is the price of visas. This has a very significant impact on the travel choices of price-conscious Chinese tourists.

We invite you to look up this blog next week to read about the third type of Chinese tourism.



Japan is actively promoting its tourism in China, with impressive success. This post outlines Japan’s efforts and results, as described in the Japan Times.

Promotional Efforts

Visas

In July 2010, the Japanese government lowered the income bracket requirement for granting visas to individual tourists from China. In July 2009, Japan had begun granting tourist visas to high-income individual Chinese.

Promotion of Hokkaido

A tip of the hat in thanks from Japan goes to the hugely successful 2008 Chinese movie, “If You Are the One,” set largely in picturesque Hokkaido, a northern island of Japan.

In September 2010, Hokkaido held a three-day event at the Japanese Pavilion in the Shanghai World Expo. In August 2010, the hot-springs resort area of Atami held a promotional week at the Expo.

Chinese Credit Cards

As of the end of April 2010, about 17,300 stores and facilities across Japan accept the Chinese UnionPay credit card. In addtion to businesses in major cities, more establishments in Hokkaido and Kyushu are making the move to accept the card.

Well Worth the Effort

The number of Chinese tourists to Hokkaido in 2008 was 47,400 (an increase of 75 percent over the previous year), and officials saw a similar trend in 2009. In comparison, visitors to Hokkaido from Taiwan and South Korea in 2008 were 227,600 (down 18 percent) and 139,100 (17.8 percent) respectively.

The Japan Times reported in 2010, that each Chinese tourist on average spent at least 30% more than other tourists.

With Chinese customers’ penchant for items made in Japan, purchasing products like US$75 and US$800 pantyhose and US$450 to US$900 basic beauty products, some are ringing up purchases of US$15,000.

Average purchases with the Chinese UnionPay credit card are US$45,500, three times more than Japanese average credit card purchases. A VenusFort general manager reports the average Chinese credit card purchase to be twice the typical amount a Japanese customer spends.

Looking Ahead

Future proposals for Japan to cater to Chinese visitors include installing Chinese language signs on streets and public transportation and hiring interpreters. Japanese businesses are seeking to bridge the culture gap, including table manners, food preferences, and how to use hot springs.

Source: http://search.japantimes.co.jp/cgi-bin/nn20100617f2.html

interior entrance to Bloomingdale's in the Dubai Mall

The glitsy Bloomingdale's in the Dubai Mall

In response to the surge in Chinese visitors in countries of the United Arab Emirates, businesses are pulling out all the stops to attract more visitors and convince them to boost their spending, with special promotions that run for a couple of weeks into the Lunar New Year, even to the end of the month.

Many hotels are offering special meals and a la carte menus, while others have rolled out golf, spa and overnight packages for guests who visit over the next couple of weeks.

The retailer Bloomingdale’s says it plans to double its number of Chinese-speaking staff to cater for a growing number of customers.

Hoteliers, restaurateurs and retailers throughout the Emirates are reporting a surge in Chinese visitors ringing in the Year of the Rabbit.

About 2,500 Chinese visitors have reportedly come to the UAE through Hunter International Tourism, one of China’s largest travel agencies, to celebrate the Lunar New Year, which began yesterday, or attend conferences. The numbers are expected to match, if not exceed, last year’s figure.

“China is a massive market,” says Mr Goddard, the managing director of TRI Hospitality Consulting in Dubai, and the Chinese New Year period is “going to be a huge opportunity for getting Chinese nationals to the Middle East. Anything that promotes the Chinese market would be good for the long term.”

Global spending by tourists from China was up 17 per cent in 2009 from 2008 to US$43.7 billion (Dh160.5bn), according to the UN World Tourism Organization.

Overall, the UAE has seen a sharp increase in visitors from China since the autumn of 2009, when the country gained “approved destination” status from the Chinese government to have tourist groups come through the region.

source: http://www.thenational.ae/business/travel-tourism/chinese-new-year-boosts-uae-tourism-industry



UK Retailers are Urging the Government to Simplify the Visa Process

The majority of Chinese people travelling to Europe apply for a Schengen visa, which enables entry to the 24 European countries that have signed the freedom of movement agreement.

The UK is not party to that agreement and a separate visa is required, necessitating a personal visit to one of 12 application centres in China. Application forms are 10 pages long and have only just become available in Mandarin.

UK luxury retailers are pressing the government to tackle visa bottlenecks for Chinese tourists, claiming bureaucracy is causing shoppers to shun London stores in favour of centres such as Paris and Milan, reports the Financial Times.

Retail spending in the UK from Chinese visitors topped £350m last year, according to Global Blue, a financial services company, but retailers including Harrods, Selfridges and Fortnum & Mason argue this could be far higher if the UK visa process was simplified.

Global Blue estimates the visa application procedure could rob luxury retailers of £165m of sales during the next two years.

the Harrods store at night

The glittering Harrods department store, Knightsbridge, London

source: http://www.ft.com/cms/s/0/ae31f484-2c9d-11e0-83bd-00144feab49a.html

The Schengen Area comprises the territories of twenty-five European countries that have implemented the Schengen Agreement signed in the town of Schengen, Luxembourg, in 1985. The Schengen Area operates very much like a single state for international travel purposes with border controls for travellers travelling in and out of the area, but with no internal border controls.

source: http://en.wikipedia.org/wiki/Schengen_Area

Shopping in Japan picture source: Larry R. Lom

Japan has always been a hotspot tourist destination – with beautiful cherry blossoms, Mount Fiji looming on the horizon, tranquil Zen gardens, natural hot springs, and delicious seafood delicacies, people flock to Japan by the millions. This is also true for Chinese tourists, but not for the same reasons – Chinese are traveling to Japan to purchase, purchase, and purchase. The new generation of young Chinese white collar workers are looking to go to Japan to buy electronics and other products and is leaving the site seeing to the grandparents. The reason for the increase of shopping visits to Japan according to Zhang Qin, a Beijinger and seasoned shopper, is because of quality. Chinese are also wary of buying fakes instead of legitimized products in China. The increase of this new breed of Chinese tourists is warmly welcomed by Japan as they are relaxing their visa requirements for Chinese citizens. This news also brings Japanese retailers a sigh of relief, as Chinese who go to Japan put serious dents in their wallets. The value of transactions made on ATM withdrawals from Chinese debit cards, the amount increased from 2.7 billion yen in 2007 to 20 billion yen in 2009 – and there have been speculation that this number will quadruple in the next 2 years. The Chinese seem keen on spending all over the world,  from Europe to Japan –  there is no stopping the Chinese from saving the world’s otherwise stagnant economy.

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Michael Kaltenhauser

Founder and director of Astronaut, a marketing agency based in Beijing which is specialized on promoting destinations to Chinese outbound tourists

Laura Hine

Online Communications Assistant at Astronaut