A salesman showing the limited edition launched by Emporio Armani to welcome the Yr of the Tiger at a duty-free store in Haikou, south China’s Hainan Province, January 15, 2022.
Zhou Huimin | Xinhua News Agency | Getty Images
Stocks of many luxury fashion houses reliant on Chinese consumers rallied on China’s reopening, but those customers may not necessarily be buying the products overseas.
Up to now, trips abroad often included personal luxury purchases for affluent Chinese consumers seeking to make the most of currency and tax advantages.
Shares of LVMH have gained around 12% since early December when Beijing began rolling back its zero-Covid policies.
Similarly, Cartier-owner Richemont shares have gained about 13%, while Dior rose greater than 11% from early December.
Domestic luxury consumption now a habit
The “revenge spending” that comes with the return of overseas travel will result in a rise in consumption of luxury goods in 2023, Jessy Zhang, an analyst from Daxue consulting told CNBC.
“[The Chinese’s] mentality is that they should buy luxury goods in duty-free stores before returning home,” Zhang said.
But years of zero-Covid measures have taught Chinese consumers they will get their fix of opulence on their very own shores — and experts say this habit is here to remain.
A Bvlgari store in a shopping center in Shanghai, China on January 12, 2023.
CFOTO | Future Publishing | Getty Images
“China’s domestic luxury consumption should far exceed that of overseas luxury consumption,” said Zhang, who estimates that in the long term, domestic luxury consumption will account for 70% of the Chinese luxury consumers’ spending, and a mere 30% from abroad.
That may be the inverse of spending patterns before 2017, when over 70% of Chinese luxury spending took place outside of China, in accordance with Zhang.
In consequence, the world’s largest luxury market by 2025 shall be shopping mainly “in-house.”
“Although domestic after-tax prices in China might be a drawback, the familiarity of the shopping journey, close relationships developed with local store assistants, and the broader range of brands and product offerings in Mainland China over the past years increase the attractiveness of domestic shopping,” said Kenneth Chow, principal at Oliver Wyman.
He added it’s unlikely the share of overseas luxury searching for Chinese consumers will recuperate to pre-pandemic levels of over 70%.
Moreover, places like China’s island province of Hainan, lined with all its duty-free shopping malls is a tax-free haven for a lot of luxury shoppers. Sales there reported a greater than 120% jump in 2020, and increased by about 85% in 2021, in accordance with a report by Bain & Co.
People line as much as enter Haikou International Duty Free City Complex on the opening day on October 28, 2022 in Haikou, Hainan Province of China.
Vcg | Visual China Group | Getty Images
“Once I got here to Hainan, I discovered that shopping on the duty-free shops’ apps is just too convenient, and it even comes with a junk mail to home option,” an area wrote on Chinese social media platform Weibo.
The increasing digitalization of shopping processes has also facilitated Chinese shopping online for luxury goods, Bain & Co said in a report.
Global luxury houses have also caught on and expanded their physical presence in China for the reason that pandemic began, said Barsali Bhattacharyya, manager of industry briefing on the Economist Intelligence Unit.
“For instance, LVMH reported a 20% increase within the variety of stores in Asia (excluding Japan) between December 2019 and June 2022,” she said.
Compounded by travel restrictions
The awful overseas luxury shopping figures are also compounded by various travel restrictions imposed on Chinese travelers by other countries.
European nations, which comprise many luxury shopping locations, beneficial requiring travelers from China to indicate negative Covid tests. Likewise, Japan and South Korea also require Covid tests for travelers from China.
More Chinese consumers are also favoring short-haul trips over long-haul vacations, Oliver Wyman’s Chow said, adding that Hong Kong and Macao could be among the many first to learn from Chinese travelers —sooner than other luxury shopping destinations like Western Europe.
Still, Chow said it should be a “long journey” until international travel is back fully.
“Brands and retailers might want to spend more effort to draw them to buy overseas, and at the identical time match their higher expectations.”
