By Marco Passoni
I read with interest this week the news that inbound international tourism in China has risen 305% according to the government in the first quarter of 2024. Outbound traffic from China has always been a talking point for both the travel retail and luxury sectors, but this influx of arrivals in China could be a key moment for the country’s luxury market.
It is no secret that since the pandemic, the Chinese government has sought to keep luxury spend inside the country, rather than letting it spread as much around the world as it once did. Early data suggests they may be successful, with some indicating a large percentage of Chinese shoppers expect to keep shopping at home. But this picture ignores one key issue in China’s luxury market – price.
China has a problem with pricing in the luxury market. It was an issue before the pandemic and a driving force behind the rise in daigou shoppers which authorities sought to stop. Now, with international travel in and out of the country on the rise once more, I fully expect it to raise its head again.
China has a problem with pricing in the luxury market
Simply put, luxury shopping in China is expensive. The majority of luxury goods are crafted in Europe, due to the country’s long history as a centre of craftsmanship, and because many of the companies are housed there. This means anyone selling in China faces distribution and logistics costs. On top of that are the local taxes, which can be as high as 40% in some locations. The issue was compounded during the pandemic, when Chinese shoppers had no choice but to shop at home and prices went up to match demand. But this has had a tangible impact: figures from Retviews show that the same luxury bag, for example, can cost between $300 and $2,500 more in China than it does in Europe.
This is not a trend the Chinese market can sustain, and it will only get worse as travel recovers. Not only are inbound shopper numbers up, but outbound Chinese traveller numbers are climbing. To-date, outbound travel from China has only recovered to about 46% of pre-Covid levels, but the issue is already raising its head. Nearby luxury markets such as Japan are seeing the benefits of Chinese shoppers returning and taking advantage of the price advantage of shopping there. This issue will only get worse are travel recovery continues – Bain & Co predict that there will be a 70% drop in Chinese domestic luxury retail in the coming years.
This is further compounded by a problem which I have raised before – China is not an easy market for brands in many cases. Hainan is a shining light which can help boost sales in China in this situation, it is a travel destination and is on its way to becoming a duty-free port. But it is still a site where some brands struggle to get the people on the ground and the direct control of their experience that they require. China is not isolated anymore and shoppers will share their experiences.
Nearby luxury markets such as Japan are seeing the benefits of Chinese shoppers returning and taking advantage of the price advantage of shopping there – this issue will only get worse are travel recovery continues
All of this is, potentially, good news for the wider luxury world, especially in Asia Pacific in the short-term. An unexpected rebound in luxury sales in Hong Kong last year signalled this change and Japan and South Korea are beginning to see the benefits too. It is easy to understand why brands are investing in markets such as Australia too, to enhance their offer and appeal.
Europe’s key markets will be paying attention too, with price-seeking Chinese shoppers potentially returning. There is no doubt they will not come in the numbers and with the power that they once did, but the market must be prepared to offer the experience these consumers want. Price is appealing, but luxury is about a moment and a lifestyle – shoppers will not want a cheaper experience to go with the cheaper price.
Finally, and I am repeating myself here because it is always worth saying, this is the latest moment for the UK government to look again at its ruinous decision to drop tax-free shopping. If Chinese shoppers – or any other travellers – are in search of the best value for their luxury, they will shun a market which is putting on taxes for no good reason. Opportunities must be seized.
