Mainlanders in quest for unique experience from overseas travel, as shopping loses appeal
Travel preferences are shifting as mainland tourism enters a new phase
The rise of the Chinese consumer has been both fast and of immense scale. In recent years, we have observed, sometimes in awe, this powerful group of spenders enter into overseas markets and swallow up huge amounts of merchandise.
All of this activity has driven their spending – relative to global retail sales growth – to grow quickly. Chinese tourist spending hit a significant US$229 billion in 2015, according to global consultancy GfK. Forecast by Fung Business Intelligence Centre to soar to US$422 billion by 2020, the figure was much higher than the US$165 billion registered by China’s State Administration of Foreign Exchange in 2014 and the US$29 billion recorded in 2013.
While such huge numbers should come as little surprise, what we may not realise is that the way Chinese consumers are spending is changing: they are increasingly preferring cultural and historical experiences over shopping.
A study from market research company GFK revealed that long-time favourite shopping destinations like Hong Kong and Macau are losing appeal. As more Chinese come to value the experience of the trip itself, it is the experience of being abroad that has become the ultimate luxury good rather than a new handbag or pair of shoes.
Another study from Oliver Wyman works to dispel the myth that Chinese consumers only go abroad to shop. Sightseeing actually ranked as the prime motivation for many trips, with shopping taking on secondary importance. This will be true for a greater number of people as more Chinese consumers find themselves in excess of material merchandise.
While the share that Chinese tourists spend on actual merchandise varies by destination, Thailand and Indonesia are among the lowest, as visitors tend to go to these places for relaxation and cultural experiences – not shopping. Thus, the motivation for travel to these countries differs greatly from city trips to Hong Kong, Macau, and Tokyo, which Chinese travellers target as destinations for splurging.
At the same time, we cannot ignore the fact that once abroad in well-developed markets, Chinese consumers are often impressed by the competitive prices and wide product selection, not to mention the quality level of service. This excites them and encourages them to make the most of their opportunity overseas to buy as they please.
According to JLL Research estimates from earlier this year, shopping malls in China generate about 1.65 trillion yuan in sales per year. Thus, some 848 malls in China’s top 30 retail markets – a figure that JLL Research predicts will rise to over 1,000 this year – aren’t cutting it for Chinese consumers, who are more drawn to the three “o’s”: online, overseas, and outlet shopping.
JLL Research estimates e-commerce industry sales volumes to be at least double that of the sales in all physical malls in China combined.
The reason that malls in China are facing challenges boils down to their shortcomings in service, quality, and price. For example, a recent JLL Research investigation of 650 shopping centres across 10 Chinese cities found that two-thirds or more of common area facilities at malls are not meeting cleanliness standards.
As the reasons for travel change, places further afield than Hong Kong and Macau – such as Thailand, South Korea, and Japan – are quickly gaining traction with Chinese travellers. They now comprise the dominant, if not top tourist group for most countries within Asia Pacific, the fastest-growing and most-visited region in the world, according to the 2016 MasterCard Asia Pacific Destinations Index. Meanwhile, globally, the US and the UK continue to be popular with Chinese tourists.
Volatile currency markets are also having an impact on the desirability of certain locations over others. For instance the weak British pound has stimulated interest in travel to the UK.
It should be noted that the popularity of destinations could change swiftly as travellers weigh “geographical arbitrage”.
The reach of social media has also become more influential. For example, Chinese app WeChat allows instantaneous photo and text sharing. This not only encourages users to post as they travel, but also enables people to keep up with and be influenced by the travel habits of their friends. As mainland Chinese become wealthier and find themselves in abundance of material items, it is the experiences abroad that are destined to matter more.
Chinese consumers continue to love duty-free, as more than a third of their spending overseas was recorded in this area. Cosmetics and accessories are the main attraction given that prices for these goods are greater back home. As long as prices in China continue to be mismatched with those overseas, we can expect duty-free shopping to remain a significant part of the travel experience in the future. Shopping might not be the focal point of a trip overseas anymore, but until prices, product selection, and service levels in China improve, overseas shopping by Chinese consumers will remain an important driver for retail sales in several countries.
Steven McCord is head of retail research, Asia at JLL