Chinese retail spend to hit $422bn by 2020

By Kevin Rozario |

Chinese shoppers in London smallSurging numbers of Chinese travellers will drive spending from an estimated $229bn in 2015 (up by +23% YoY) to $422bn by 2020 – with long haul destinations looking to be among the main beneficiaries.

According to a new report from the Fung Business Intelligence Centre (FBIC) and China Luxury Advisors (CLA) the rise will be driven by a doubling of outbound passengers in the period, but it notes that spending per head is going to grow more modestly. This reflects the fact that more middle‐income Chinese are going overseas.

Management consultancy, Bain & Co, has also underlined this point in evaluating the duty free and travel retail/tax free luxury market in 2014 saying: “There has been an increase in transactions coupled with declining average tickets indicating sharp democratisation.”

In its report, FBIC also notes: “The 234m Chinese projected to travel globally in 2020 [up from 117m in 2014] will increasingly seek out themed travel and independent trips in contrast to the escorted shopping trips of the past five years.”

FBIC Chinese spend 2015-2020It adds: “We expect to see increases in travel to high-profile long haul destinations such as the US, while trips to Hong Kong and Macau will decrease as a proportion of the total.”

FBIC and CLA’s findings are based on a survey of 1,019 Chinese Internet users undertaken in the 12 months through to May 2015.

‘THE FURTHER THEY TRAVEL, THE MORE THEY SHOP’

Currently, the most popular overseas shopping categories for the Chinese are clothing, footwear and accessories (bought by 56% of travellers), beauty products (52%) and electronics (32%). FBIC says that the typical Chinese traveller spends around US$1,678 on retail purchases per overseas trip. “The further they travel, the more they shop,” says the organisation.

Chinese tourists will also be looking at a much more diverse array of destinations. FBIC says that, increasingly, they will visit smaller cities and natural destinations such as national parks and nature reserves. Themed trips, such as wine tours or safaris, are coming to the fore.

FBIC Chinese spend by market 2015

The highest per head spending is taking place further away… in Europe and the US

Bain &Co estimates that the Chinese accounted for 29% of global luxury sales in 2014 while some 77%, or $66bn, of Chinese luxury consumption occurred outside China’s borders. The crackdown on ostentatious spending by the Chinese government is expected to see that percentage rise.

PRESSURE OF EXCHANGE RATES

Luxury brands have been feeling pressure in the Chinese domestic market due to the summer devaluing of China’s yuan currency, which is making imported goods more expensive. The Yuan has fallen by -7% against the euro in the past three months for example and markets have reacted by pulling out of luxury stocks. Last week, LVMH said that a Chinese showdown had impacted its Q3 sales and its share price is down -4.3% in the past three months while Burberry’s shares have crashed by -20% in the same period over Chinese domestic worries.

While this opens up opportunities for sales to Chinese travellers – whose appetite to go abroad has not wavered – luxury brands need to develop effective strategies for balancing their Chinese domestic sales against international markets and channels such as duty free and travel retail, without the risk of cannibalisation.

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