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In China, the lifting of restrictions just over a month ago should boost demand in the global luxury retail market. But several unknowns remain. Will Chinese tourists prefer to shop at home? Will they fly again to travel and consume abroad? Here is an update on the new behaviors of the Chinese population after these three years of confinement.
After a long time under drastic restrictions, China’s economy is slowly recovering. Its 1.4 billion inhabitants will finally be able to regain a semblance of freedom, and at the same time, resume their consumption habits. But some questions arise. Taxes on luxury goods being very high, the Chinese favored foreign purchases until the pandemic. But with the rise of Hainan Island, China’s duty free paradise, one wonders what direction the population will take. Will they now focus on domestic shopping or will they start to focus on overseas consumption again?
Last week, the share prices of luxury brands jumped. And this after Beijing announced that it would ease travel restrictions from the second week of January. This will allow Chinese tourists to travel again to shopping malls around the world.
But some analysts and luxury houses are skeptical about the immediate return of Chinese travelers to the West. The cause? Some airlines have yet to fully resume operations. And luxury brands, having lost a significant part of their Chinese clientele, have decided to invest more in the shopping experience in China.
This is notably the case of Hermès, which last week opened a new boutique in the city of Nanjing. The French group had already established itself in the country since 2010 with the opening of 27 outlets.
Other luxury brands such as Louis Vuitton and Coach have continued to invest in China. China is expected to become the largest market for the sector by 2025, despite the major disruptions caused by the numerous containment measures. Luca Solca, an analyst at Bernstein, predicts that luxury goods sales could grow by 25-35% in the country by 2023. This compares with a 5-10% increase in Western countries.
Optimistic sales projections in China
Before the pandemic forced China to close its borders in 2020 as a security measure, Chinese shoppers were buying 70% of their luxury goods abroad. Since the covid, domestic luxury sales in China have doubled to 474 billion yuan ($68.5 billion) from 2019 to 2021, according to international consulting firm Bain & Co. In the global market, the share of Chinese consumers fell to 21 percent in 2021 from 25 percent in 2019.
“It’s not going to go back to 70 percent,” says Jonathan Yan, director of Shanghai-based consulting firm Roland Berger. “I’m sure there will still be some luxury spending in other countries, as it’s natural that people like to shop when they travel, but it will be more like 50-50.”
Many luxury brands have already decided to expand in China rather than wait for Chinese customers to return to shop around the world. Some brands are even organizing fashion shows, for Chinese consumers unable to go abroad. A change that has helped local staff cultivate relationships with Chinese VIP customers, who are directly targeted by these strategic changes.
Alternatives
For many Chinese, flying internationally to buy luxury goods is no longer an option. All the restrictions concerning the pandemic and international travel have indeed led many consumers to go to the Chinese island of Hainan, which is in a way the Eldorado of tax-free luxury.
The figures speak for themselves. In 2021, Hainan accounted for 13% of domestic luxury spending in China, up from 6% before the pandemic. And tax constraints are expected to continue to ease, as China sees a financial benefit. By 2025, luxury brands will be able to operate their own tax-free stores and will no longer be required to rely on partnerships with local players.
According to Jonathan Yan (Roland Berger), the popularity of China’s duty-free island is expected to continue by 2025. And for good reason: only 13% of Chinese citizens have a passport!
The West remains in the minds of the people…
Nevertheless, despite the unquestionable popularity of local purchases, prices are still higher than in the rest of the world. Let’s take the example of luxury handbags, highly coveted by Chinese consumers. Before, the Chinese market price was 50-60% higher than the Western market price. Today, it is now only 10 to 20% cheaper. A difference that still makes some people hesitate. They still prefer to go abroad in search of cheaper luxury.
Financial analysts predict a return of the Chinese population to Europe by 2024. Since the announcement of the lifting of the quarantine, international travel searches and bookings have so far favored short-haul international destinations such as South Korea and Japan, which rank high in searches.
The wider availability of luxury goods, especially on the European continent, combined with the savings made, should gradually put shopping vacations back on the agenda for a few privileged Chinese.
Read also >China: a lifting of restrictions favorable to luxury?
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In China, the lifting of restrictions just over a month ago should boost demand in the global luxury retail market. But several unknowns remain. Will Chinese tourists prefer to shop at home? Will they fly again to travel and consume abroad? Here is an update on the new behaviors of the Chinese population after these three years of confinement.
After a long time under drastic restrictions, China’s economy is slowly recovering. Its 1.4 billion inhabitants will finally be able to regain a semblance of freedom, and at the same time, resume their consumption habits. But some questions arise. Taxes on luxury goods being very high, the Chinese favored foreign purchases until the pandemic. But with the rise of Hainan Island, China’s duty free paradise, one wonders what direction the population will take. Will they now focus on domestic shopping or will they start to focus on overseas consumption again?
Last week, the share prices of luxury brands jumped. And this after Beijing announced that it would ease travel restrictions from the second week of January. This will allow Chinese tourists to travel again to shopping malls around the world.
But some analysts and luxury houses are skeptical about the immediate return of Chinese travelers to the West. The cause? Some airlines have yet to fully resume operations. And luxury brands, having lost a significant part of their Chinese clientele, have decided to invest more in the shopping experience in China.
This is notably the case of Hermès, which last week opened a new boutique in the city of Nanjing. The French group had already established itself in the country since 2010 with the opening of 27 outlets.
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In China, the lifting of restrictions just over a month ago should boost demand in the global luxury retail market. But several unknowns remain. Will Chinese tourists prefer to shop at home? Will they fly again to travel and consume abroad? Here is an update on the new behaviors of the Chinese population after these three years of confinement.
After a long time under drastic restrictions, China’s economy is slowly recovering. Its 1.4 billion inhabitants will finally be able to regain a semblance of freedom, and at the same time, resume their consumption habits. But some questions arise. Taxes on luxury goods being very high, the Chinese favored foreign purchases until the pandemic. But with the rise of Hainan Island, China’s duty free paradise, one wonders what direction the population will take. Will they now focus on domestic shopping or will they start to focus on overseas consumption again?
Last week, the share prices of luxury brands jumped. And this after Beijing announced that it would ease travel restrictions from the second week of January. This will allow Chinese tourists to travel again to shopping malls around the world.
But some analysts and luxury houses are skeptical about the immediate return of Chinese travelers to the West. The cause? Some airlines have yet to fully resume operations. And luxury brands, having lost a significant part of their Chinese clientele, have decided to invest more in the shopping experience in China.
This is notably the case of Hermès, which last week opened a new boutique in the city of Nanjing. The French group had already established itself in the country since 2010 with the opening of 27 outlets.
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