Travel Retail Ready for Chinese Shoppers

Chinese shoppers - Luxury Hotels of AmericaLuxury brands are stepping up the battle for travelling shoppers with more outlets at airports and on cruise ships, tapping into one of the fastest growing sections of the market that looks set to keep booming thanks to soaring numbers of Asian tourists.

Revenues from travel retail, which also includes sales on airplanes, rose 9.4 percent in 2012 to $55.8 billion, according to a market study by Generation Research.

It should reach $60 billion this year and nearly double in size by 2020, the study forecast.

“This channel is becoming very important,” Bruno Pavlovsky, chairman of Chanel’s fashion business, said. “Customers are spending time in airports where the environment has become increasingly sophisticated.”

The French luxury brand, the world’s second-biggest behind Louis Vuitton by sales, has boutiques in four Asian airports and one at London’s Heathrow, and next year will open a boutique in Paris Roissy Charles de Gaulle airport and another in Dubai.

Kering’s Gucci, which like mega-brand rival Louis Vuitton has suffered a slowdown in the past two years partly due to emerging market shoppers’ growing preference for logo-free products, has opened boutiques in the same locations recently.

Tourism spending is up 12 percent worldwide since January while spending by Chinese tourists in Europe is up closer to 20 percent, according to data from tax-refund company Global Blue.

According to Pierre Gervois, CEO of China Elite Focus Magazines LLC, the publishing company owning the Shanghai Travelers’ Club magazine “Chinese shoppers want to differentiate from regular shoppers in Mainland China who can’t afford to travel. Buying luxury good overseas shows that you belong to the community of affluent consumers who can buy in Paris, London or New York – and not in a Beijing store with a generally bad customer service and the fear of having counterfeit goods, even in official flagship stores”

Chinese tourists, who barely featured in luxury brands’ customer statistics a little over a decade ago, now make up 29 percent of global luxury spending, consultancy Bain & Co said in a report published this week.

That trend is set to continue, with Boston Consulting Group (BCG) forecasting nearly half of all air traffic in the medium term will come from the Asia Pacific versus 37 percent now.

Though most luxury brands raised prices, particularly in the euro zone and in Japan, to make up for currency moves, Bain estimates that over two thirds of luxury spending by mainland Chinese was made overseas in 2013, due partly to local duties.

According to Renaissance Capital, Europe remains the cheapest market for handbags with price 9 percent below those in Hong Kong and 28 percent below mainland China, while the yen’s weakness has played in favor of luxury shoppers in Japan.

BCG expects the Chinese travel market will grow at a compound annual rate of about 11 percent from 2012 to 2030.

Chinese urban travelers took about 500 million domestic and outbound trips in 2012, spending about $260 billion, and it expects those numbers to increase to 1.7 billion trips and $1.8 trillion in spending by 2030.

Hermes, which has 50 boutiques in airports around the world, is turning these into proper free-standing shops to better tap the booming market.

“This channel affects customers that are more interested in luxury than the average,” said Patrick Albaladejo, deputy managing director of Hermes, adding that travel retail represented a “significant” portion of the brand’s total sales.

L’Oreal, the world’s biggest cosmetics group and maker of Lancome creams and Yves Saint Laurent lipstick, created a division last month dedicated to travel retail, which it described as a “sixth continent.”

Sales from travel retail generate 15 percent of total revenues at L’Oreal’s luxury division and 12 percent for rival Guerlain, the perfume and cosmetics brand owned by LVMH.

Perfume and cosmetics represent the biggest product category for travel retail with 28 percent of the market, according to Generation Research, ahead of wines and spirits with an 18 percent market share, fashion and accessories with 13.5 percent and watches and jewelry with 12.2 percent.

LVMH, which owns Louis Vuitton, is planning to launch in 2016 a new retail concept called Galleria, specially designed for travel luxury shoppers, first in Venice and then perhaps in Paris, in the former Samaritaine retail building which is due to be converted into a five-star hotel.

Sales from LVMH’s travel retail network, which includes duty-free shop chain DFS and Sephora cosmetics shops, another popular tourist destination, saw like-for-like growth of 19 percent in the nine months to September 30. The boost included contributions from LVMH’s new DFS concessions in Hong Kong.

By comparison, sales from LVMH’s fashion and leather goods, the bulk of which come from Louis Vuitton, rose by only 4 percent during the period.

By 2015, Chinese tourists could spend more than all the world’s luxury shoppers combined

Chinese tourists Hermes - Niuyue MagIn two years, Chinese tourists could be spending as much as $194 billion a year in Europe, the US, Asia and other vacation spots. That’s according to Morgan Stanley, in a research note on luxury companies.
That figure speaks of the growing economic clout of China’s middle class—but also the irony that so many are spending their wealth abroad when one of the country’s priorities is boosting consumption at home. Last year, Chinese travelers became the world’s biggest spenders, shelling out about $102 billion overseas, according to the United Nations World Tourism Organization (UNWTO)
There will be an estimated 100 million Chinese traveling abroad by the end of 2015, according to the UNWTO. Morgan Stanley compared the spending of these Chinese travelers with estimates from McKinsey of the luxury goods market, and found a remarkable result: by 2015, total Chinese spending abroad will exceed total global luxury sales, having been only one-third of the total in 2008.
Many of these travelers buy Western or designer goods abroad because import duties and other taxes add up to 60% to their prices in China, compared with cities like London, Paris or Hong Kong. Chinese business leaders have been calling on the government to cut taxes to lure luxury shoppers back home, but there are few signs it will do so. Its reluctance may be partly down to the association of designer goods in China with corrupt officials.
Campaigns against government graft and conspicuous consumption have also played a part in sending luxury spending abroad. In 2012, the year that then-prime-minister Wen Jiabao called for a crackdown on corruption, growth of luxury sales in China slowed to 6%, but Chinese luxury spending abroad increased 37%, according to estimates from the consultancy Bain. This year, amid president Xi Jinping’s crackdown, luxury sales have tumbled for high-end liquor, watches, and more.
Even if they’re not appreciated at home, wealthy Chinese shoppers remain coveted the world over. The city of Paris released a manual to try to help locals understand and appeal to the visitors. In Australia, a coastal town near Sydney is building a $500 million theme park that includes a full-size replica of the gates leading to Beijing’s Forbidden City.

China Travel Retail’s event in Shanghai from the 24th – 25th July 2012

China Travel Retail (CTR), the most focused networking event for travel retail brands, concessionaires and retailers targeting Chinese travellers, unveils the lists of world-class speakers and companies that will be involved in its inaugural event taking place in Shanghai on 24th and 25th July, 2012.

Joining the Moodie Report Founder & Chairman Martin Moodie, who together with Deputy Publisher Dermot Davitt will moderate proceedings, will be a host of world renowned industry speakers and panelists.

“We are delighted to have so many well respected industry speakers and companies participating at CTR”, said Jeffrey O’Rourke, Chief Executive of Ink. “This world-class line up of speakers, the superb agenda and the number of Chinese airports and duty free operators already attending, is fast establishing CTR as a definitive date in the Travel Retail calendar. We are hoping that over the coming weeks we will be able to announce more high profile speakers, delegates and sponsors coming to shanghai in July to attend our event”.

The China Travel Retail event and exhibition, taking place at the prestigious Marriott City Centre in Shanghai, will showcase best practices both domestically inside China, at Chinese airports and airlines, at sea, as well as how companies are successfully selling to Chinese consumers travelling overseas.  The two-day schedule for this event will include a mix of keynote speeches and master classes.

“Affluent Chinese travellers are looking for a better quality of service during their duty free shopping experience, and a better selection of products. In particular, they are looking for limited edition watches, or rare premium spirits, and not only from well known brands, but from more exclusive brands”, said Pierre Gervois, Chief Executive Officer of China Elite Focus.

“We believe that there is a need for an event that does not just showcase existing best practise within Chinese travel retail, but also helps companies to network, develop relationships and establish a footprint in this ever increasingly influential market”, said Nick Tan, President of GIS Events. “At CTR we will be bringing together for the first time, the most important decision makers from the Airports, Airlines, Duty Free operators, brands and Concessionaires in china and looking to break into this market.”