CONSUMERS

What Should Luxury Expect From Post-Pandemic Chinese Travellers?

by

Jacques Roizen

|

The Cartier storefront in Taikoo Li Chengdu
Credit: Courtesy

Ever since China reopened its borders earlier this year, luxury brands have been anticipating the return of Chinese travellers. But before they set their hopes too high, they should be aware that post-pandemic, the Chinese consumer’s motivations and expectations are not what they once were.

For the first time in over three years, Chinese consumers are expected to travel further abroad to more far-flung destinations like Paris, London, and Spain for their summer vacations.

In anticipation of this, outbound flights volume have continued to increase every month as airlines resume or add new routes to meet rising consumer demand. Air China, for example, multiplied the number of flights between China and Spain by more than five compared to last December; China Southern Airlines also launched a new route from Beijing Daxing to London Heathrow in June; and China Eastern Airlines is adding more flights to Japan, South Korea, Southeast Asia, and Oceania.

And hopes remain high.

After a complicated 2022, an increase in outbound travel should fuel luxury spending in Europe, the United States, and the rest of Asia. While the lifting of COVID restrictions in China is expected to boost Chinese consumer confidence and help the local market rebound.

Many luxury brands hope the return of Chinese outbound travellers will give 2023 an extra lift to their summer sales. But, in reality, their return is being hampered on multiple fronts.

Firstly, seat capacity for international airlines remains below 50 percent compared to 2019, while airline ticket prices have almost doubled. In addition, there is still an important backlog to process visa applications, and finally, a perception of a volatile social environment abroad is denting Chinese travellers’ confidence.

This indicates that, despite a possible outflow of luxury consumption, the domestic luxury market will not decline in the short term. A rebound in spending intentions and the return of offline traffic will be the primary drivers of growth in mainland China at least this year.

In addition, many of the barriers to local luxury expenditures have been removed over the last three years by most luxury companies. Luxury brands have significantly increased their investment in expanding their store network; in 2021 and 2022, mainland China welcomed nearly half of the stores opened globally by luxury brands.

Furthermore, iconic products are no longer suffering from higher scarcity in China in comparison to major shopping hubs in Europe, North America, or the rest of Asia – many limited editions have actually been developed for China specifically and are exclusively available in China.

Over the past three years, brands have made spectacular local investments in offline events, activations and new concepts in many of the largest Chinese cities. Finally, global pricing initiatives implemented by luxury companies have reduced the pricing gap on a large portion of their offering – especially for the most high-end products.

In this context, the progress made by luxury brands over the last three years cannot be understated: In China, nearly 50 percent of all luxury consumers in 2021 were first-time buyers.

Furthermore, the continued growth of high-net-worth individuals in China has encouraged brands to ramp up their VIC services, resulting in a substantial growth in the portion of revenue they represent inside China – from low single digits pre-Covid to more than a third of total luxury expenditures in China today.

However, the coming years will require a new demonstration of agility both inside and outside of China, considering the following factors:

Luxury brands should not expect traffic levels of Chinese shoppers comparable to 2019 in the West, at least not this year, but those who will visit their stores will come with a higher spending potential, as higher net-worth individuals are leading the trend of international travel resumption (over 30 percent average spend increase in the first half of 2023 per Chinese traveller compared to 2019). At the same time, price-conscious Chinese consumers will continue to contribute to the growth in Hainan, where the duty-free market has nearly increased by 300 percent in the last three years.

After three years of elevated experiences, local activations, exclusive new concepts and collections, Chinese VICs are likely to have very high expectations when travelling abroad, and they will evaluate their luxury purchase experience far beyond its transaction value, especially given that luxury companies are attempting to close the price gap between China and the rest of the world.

Finally, after exclusively navigating the Chinese digital ecosystem and its incredible convenience for the past three years, Chinese travellers are more likely to favour brands that communicate and provide services within their local digital ecosystem – from appointment scheduling with Mandarin-speaking sales associates worldwide to WeChat-based loyalty programs and after-sales services.

Welcome to DLG Insights, a new series of articles written and produced by our parent company’s in-house experts.

How brands adjust their digital strategy and operations to better capture Chinese travellers is one of the seven dimensions of DLG‘s Digital Acceleration Programme – a proprietary methodology designed to allow brands to elevate their presence across the Chinese digital ecosystem, and very rapidly accelerate their performance. The six other areas this program covers are Social Media, Digital Campaigns, Media Spend, E-commerce, CRM and Technology. If you are a luxury or lifestyle brand that is interested in speaking with DLG about it, you can contact us here.

Jacques Roizen
Jacques Roizen

Managing Director, Consulting, DLG (Digital Luxury Group)

Jacques leads DLG (Digital Luxury Group)’s research and consulting business and helps brands elevate their digital strategies and digital operations in China, by designing transformation programs to accelerate performance across the Chinese digital ecosystem. Before joining DLG, he was the CEO of Pandora Greater China, an EVP at Baozun (China’s largest e-commerce operator) and the China CEO of a large fast fashion retailer. He also spent 16 years in New York, working with McKinsey and Alvarez & Marsal.

CONSUMERS

What Should Luxury Expect From Post-Pandemic Chinese Travellers?

by

Jacques Roizen

|

The Cartier storefront in Taikoo Li Chengdu
Credit : Courtesy

Ever since China reopened its borders earlier this year, luxury brands have been anticipating the return of Chinese travellers. But before they set their hopes too high, they should be aware that post-pandemic, the Chinese consumer’s motivations and expectations are not what they once were.

For the first time in over three years, Chinese consumers are expected to travel further abroad to more far-flung destinations like Paris, London, and Spain for their summer vacations.

In anticipation of this, outbound flights volume have continued to increase every month as airlines resume or add new routes to meet rising consumer demand. Air China, for example, multiplied the number of flights between China and Spain by more than five compared to last December; China Southern Airlines also launched a new route from Beijing Daxing to London Heathrow in June; and China Eastern Airlines is adding more flights to Japan, South Korea, Southeast Asia, and Oceania.

And hopes remain high.

After a complicated 2022, an increase in outbound travel should fuel luxury spending in Europe, the United States, and the rest of Asia. While the lifting of COVID restrictions in China is expected to boost Chinese consumer confidence and help the local market rebound.

Many luxury brands hope the return of Chinese outbound travellers will give 2023 an extra lift to their summer sales. But, in reality, their return is being hampered on multiple fronts.

Firstly, seat capacity for international airlines remains below 50 percent compared to 2019, while airline ticket prices have almost doubled. In addition, there is still an important backlog to process visa applications, and finally, a perception of a volatile social environment abroad is denting Chinese travellers’ confidence.

This indicates that, despite a possible outflow of luxury consumption, the domestic luxury market will not decline in the short term. A rebound in spending intentions and the return of offline traffic will be the primary drivers of growth in mainland China at least this year.

In addition, many of the barriers to local luxury expenditures have been removed over the last three years by most luxury companies. Luxury brands have significantly increased their investment in expanding their store network; in 2021 and 2022, mainland China welcomed nearly half of the stores opened globally by luxury brands.

Furthermore, iconic products are no longer suffering from higher scarcity in China in comparison to major shopping hubs in Europe, North America, or the rest of Asia – many limited editions have actually been developed for China specifically and are exclusively available in China.

Over the past three years, brands have made spectacular local investments in offline events, activations and new concepts in many of the largest Chinese cities. Finally, global pricing initiatives implemented by luxury companies have reduced the pricing gap on a large portion of their offering – especially for the most high-end products.

In this context, the progress made by luxury brands over the last three years cannot be understated: In China, nearly 50 percent of all luxury consumers in 2021 were first-time buyers.

Furthermore, the continued growth of high-net-worth individuals in China has encouraged brands to ramp up their VIC services, resulting in a substantial growth in the portion of revenue they represent inside China – from low single digits pre-Covid to more than a third of total luxury expenditures in China today.

However, the coming years will require a new demonstration of agility both inside and outside of China, considering the following factors:

Luxury brands should not expect traffic levels of Chinese shoppers comparable to 2019 in the West, at least not this year, but those who will visit their stores will come with a higher spending potential, as higher net-worth individuals are leading the trend of international travel resumption (over 30 percent average spend increase in the first half of 2023 per Chinese traveller compared to 2019). At the same time, price-conscious Chinese consumers will continue to contribute to the growth in Hainan, where the duty-free market has nearly increased by 300 percent in the last three years.

After three years of elevated experiences, local activations, exclusive new concepts and collections, Chinese VICs are likely to have very high expectations when travelling abroad, and they will evaluate their luxury purchase experience far beyond its transaction value, especially given that luxury companies are attempting to close the price gap between China and the rest of the world.

Finally, after exclusively navigating the Chinese digital ecosystem and its incredible convenience for the past three years, Chinese travellers are more likely to favour brands that communicate and provide services within their local digital ecosystem – from appointment scheduling with Mandarin-speaking sales associates worldwide to WeChat-based loyalty programs and after-sales services.

Welcome to DLG Insights, a new series of articles written and produced by our parent company’s in-house experts.

How brands adjust their digital strategy and operations to better capture Chinese travellers is one of the seven dimensions of DLG‘s Digital Acceleration Programme – a proprietary methodology designed to allow brands to elevate their presence across the Chinese digital ecosystem, and very rapidly accelerate their performance. The six other areas this program covers are Social Media, Digital Campaigns, Media Spend, E-commerce, CRM and Technology. If you are a luxury or lifestyle brand that is interested in speaking with DLG about it, you can contact us here.

Jacques Roizen
Jacques Roizen

Managing Director, Consulting, DLG (Digital Luxury Group)

Jacques leads DLG (Digital Luxury Group)’s research and consulting business and helps brands elevate their digital strategies and digital operations in China, by designing transformation programs to accelerate performance across the Chinese digital ecosystem. Before joining DLG, he was the CEO of Pandora Greater China, an EVP at Baozun (China’s largest e-commerce operator) and the China CEO of a large fast fashion retailer. He also spent 16 years in New York, working with McKinsey and Alvarez & Marsal.

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