Wealthy Chinese Flock to High-Octane Shopping Hubs

If the first wave of China’s travel recovery story was about short-haul flights to cities that gave people immediate relief after three years of cabin fever, the second wave is a more nuanced affair. Still motivated by escapism following the lifting of zero-Covid restrictions, mainlanders are now starting to travel further afield but mostly within the Asia-Pacific region, often to familiar but decadent destinations.

While Hong Kong became accessible to mainland Chinese late last year, and Japan was especially popular during last month’s cherry blossom season, Chinese travel agency Trip.com has also identified Thailand, Singapore, Australia and South Korea as some of the most-booked outbound destinations for Chinese travellers in March. In a McKinsey survey from the same month, 40 percent of Chinese travellers said they wanted their next trip to be international.

But it’s not until this quarter or the second half of the year that most destinations will see a bigger wave of outbound visitors, said the China Outbound Tourism Research Institute (COTRI). It’s forecasting 110 million outbound trips from the mainland this year which is just two-thirds of the traffic seen in 2019.

What do the latest travel patterns mean for global luxury brands and especially those reliant on tourists in their European stores?

Global Blue, the duty-free tax refund company, said that in March mainland Chinese spending in Europe had reached nearly half of what it was in 2019, a big rise from the 22 percent seen in the first two months of the year. While this is encouraging, it is still a far cry from the pre-pandemic levels brands enjoyed when throngs of Chinese shoppers regularly filled stores along Paris’ Avenue Montaigne and Milan’s Via Montenapoleone.

The recovery is expected to gradually strengthen in the months ahead but the COTRI predicts that Chinese outbound travel won’t overtake pre-Covid levels until next year. Capacity issues will continue to hinder progress until then. A significant backlog in Chinese passport renewals and fewer flights have made it difficult or, at the very least, more expensive to travel.

A shortage of routes into China means global inbound flights for March are at 15 percent of 2019 levels, according to aviation data firm Cirium. While Chinese carriers were able to ramp up capacity relatively quickly after China reopened earlier this year, European airlines have been slower to relaunch routes into the country because a Russian ban on using its airspace forces them to use longer routes, increasing fuel and staffing costs.

But luxury brands with a global footprint could potentially recoup some of the foregone Chinese sales in Europe and the US elsewhere. In addition to their retail networks in the mainland which are likely to continue to benefit from the repatriation of spending in the short-term, brands with stores in other regions could help satisfy some of the pent-up demand for overseas shopping.

Routes from China to the Middle East, especially via UAE-flag carrier Emirates Airlines, are recovering fast, according to a Barclays report predicting Chinese tourists will provide a boost to Middle East luxury sales this year.

“Looking at flight data, it is clear that travel from mainland China towards Dubai is recovering at a much faster pace than towards Europe since year to date, thanks to higher flight capacity and targeted marketing campaigns from the city towards Chinese tourists,” Barclays analyst Yasmin Clark, said in a note.

Pre-pandemic, Chinese tourists drove around 10 to 15 percent of luxury sales in Dubai, the note estimates. “Daily flights have resumed from Guangzhou since February 1st, from Shanghai since March 1st, and from Beijing since March 15th. Still facing very limited flights towards Europe, we think the UAE presents itself as an attractive alternative destination in coming months for Chinese travellers,” Clark said.

Dubai Tourism has been proactively courting the Chinese traveller again and the UAE is a country where Chinese tourists can enjoy visa-free travel. In other popular shopping destination countries, visas can be a significant barrier.

The UAE has a strong relationship with China, said John Zhang, the UAE representative for the Shanghai Chamber of International Commerce. This has helped Chinese tourists feel welcome and secure there at a time when geopolitical tensions with the US and some European countries have been on the rise. But it’s not all about the bigger picture; practical initiatives at company level help too.

“Emaar recently launched a Chinatown in Dubai Mall complete with Haidilao and other famous Chinese brands,” Zhang said.

The colossal mall, where Balenciaga, Balmain and Burberry are present alongside dozens of other luxury brands, signed a deal with Alibaba’s digital wallet Alipay in 2018 to make itself more attractive to inbound Chinese. In neighbouring Saudi Arabia, the tourism authority’s new partnership with Unionpay, the dominant Chinese card provider, has also led to more interest from the mainland.

The Middle East offers impressive landmarks and novel experiences to Chinese tourists, while providing a degree of familiarity at retail and hospitality establishments. Shopping can be done efficiently under one roof at megamalls like those back home and the scale and aesthetic of leisure facilities like water parks are often similar too.

Australia’s Gold Coast is another destination that is rising in popularity among the Chinese.

Although it’s a much smaller contribution in spending compared to the nation’s two largest cities Sydney and Melbourne, the tropical environs of Surfers Paradise so close to major brands like Chanel, Gucci and Louis Vuitton at Pacific Fair Shopping Centre, where many of retail store staff have been selected for Mandarin speaking skills, has caught the attention of Chinese travellers. Meanwhile, nearby Harbour Town is a go-to for outlet shopping.

While much of the draw of going to Europe is getting the best prices for luxury in brands’ home markets, Australia is a popular option “if you’re looking for a more holistic trip where you can… shop but you can do things outdoors [and] all of that,” said Katie Thomas, who leads the Kearney Consumer Institute.

The country’s famous beaches, unique wildlife, natural landscapes, fresh cuisine and reputation for a healthy lifestyle provide a compelling mix, especially since wellness became top of mind to many Chinese after enduring the pandemic.

It’s not just short-term sightseeing in Australia that is spurring spending but stays for higher education or even relocation that can provide a longer-term boost. Upper- and middle-class Chinese with the means to do so have been looking to invest or emigrate outside of China after a tough three years under strict zero-Covid measures.

Typically, Canada would feature as a top alternative but at the start of the year it implemented a two-year ban on foreign property buyers, including the Chinese, aimed at cooling its housing market. Escalating tensions between the China and the US on everything from microchips to TikTok and mainlanders’ fears over American gun violence have deterred many from going there. Australian destinations are closer to China than most in North America and it provides a larger Chinese diaspora than Europe which means Chinese culture is also more prevalent in some of its cities.

But Singapore, by far, is the most popular place for Chinese looking to transfer their wealth. The city-state, often dubbed “Asia’s Switzerland” offers a low tax rate with both geographical proximity and Mandarin as an official language, in addition to permanent residency for anyone investing 2.5 million Singapore dollars ($1.8 million). As a hub for both investment and wealth management, Singapore’s number of family offices surged to about 700 in 2021 from 400, driven mainly by an uptick in mainland Chinese.

As wealthy mainlanders poured into the real estate market snapping up second or third homes, Singapore’s home prices soared 14 percent in 2022, according to data from real estate brokerage Knight Frank, while prices in Hong Kong fell by single digits. Traditionally, Hong Kong provided many of the same benefits and it still captures a lot of the transfer of assets but Singapore has been catching up to its appeal because of the political protests seen in Hong Kong in recent years.

According to the Hurun Report, which tracks the habits of wealthy Chinese, the “preferred overseas investment destination has moved from London to Singapore and Hong Kong” in the last year. Among ultra-high net worth individuals, it found that Dubai and Singapore were among the fastest growing trip destinations.

China’s reopening has already started to force the pendulum of Chinese luxury spending to swing back from the extreme position of 90 percent domestic sales in 2020 and 2021 during zero-Covid measures, but it will not return to the pre-pandemic starting position, suggests Flavio Cereda, head of luxury research at Jefferies.

Over time, brands will most likely see “a reversal of the pre-pandemic dynamic” where the majority of luxury spend took place overseas. In other words, while overseas purchases made up around 65 percent of the overall luxury spend by the Chinese in 2019, he expects domestic purchases to account for 65 percent by 2026.

This underscores an important point for brands tracking shifts in Chinese travel patterns. However important it is to anticipate new traffic to cities like Dubai and Singapore, especially in the short-term, brands should not lose sight of the investments they need to make longer-term to capture domestic spend rising in the mainland.

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