Loss of Chinese tourists forces European luxury retailers to rethink
On a train through the English countryside, the voice of a woman speaking Mandarin Chinese announces Bicester Village, an outlet center near Oxford. There, Chinese-speaking staff stand by at luxury fashion stores from Burberry to Tory Burch. But among buyers, the language is no longer often heard.
Chinese tourists, once the biggest driver of luxury sales, have all but disappeared from European shopping streets since China’s borders closed in 2020. With no specific date for their return, retailers are having to find new tactics.
Rather than selling easy-to-grab items to fast-moving tourists, sales teams need to slow down and customize their services for the pickiest locals.
This is a dramatic shift for an industry that previously focused on catering to Chinese tourists. In the decade before Covid hit, Chinese consumers became by far the world’s biggest spenders on luxury goods, making a third (93 billion euros) of global sales, according to the consultancy. Bath board. But they only made a third of those purchases in China.
They did the rest during trips abroad, especially in Europe. Chinese shoppers felt shopping at European flagship stores was more authentic, and it was also much cheaper: they could shop tax-free thanks to European discounts.
As a result, Chinese tourists have become the largest luxury consumers per capita among all travellers, accounting for two-thirds of the sector’s sales in Europe before Covid.
“He was on steroids before the pandemic,” said Achim Berg, global luxury group leader at consultancy McKinsey.
In the UK in 2019, Chinese made up just 5% of non-European visitors to the UK, according to VisitBritain, the country’s tourist board. But they accounted for 32% of all tax-free purchases, according to data from Global Blue, a tourist shopping tax refund company.
“Retailers have really defined the shopping experience for Chinese tourists,” said Claudia D’Arpizio, global head of fashion and luxury at Bain. Not only have retailers hired Chinese-speaking staff, but they have focused inventory displays on products favored by Chinese shoppers, especially bags, which could be quickly picked up by a rushed traveler, as opposed to clothing, which must be tried.
Jingjing Zhou, a sales assistant at the Parisian department store Galeries Lafayette, was among those recruited before 2020. “It was the best time to enter the retail business,” Zhou said. “Very few Europeans learn Chinese, so as a foreign student, you might get hired, make good sales, and then get a permanent contract. Nowadays it’s not so easy for my friends to enter this industry.
The biggest booths at Galeries Lafayette, from LV to Longchamp, all have at least one Chinese speaker on duty, but these days Zhou mostly uses his French. In the first quarter of 2022, only 200,000 Chinese traveled outside Greater China, a hundredth more than the same period in 2019, according to the China Outbound Tourism Research Institute.
As luxury groups like LVMH have sharply increased their overall revenues during the pandemic thanks to sales in China, they have had to change tactics in their European stores to woo more local buyers.
“Of course it is quite expensive. All that money spent on training, because the whole shopping experience has changed,” D’Arpizio said.
A recent surge in tourists from the Middle East, as well as US visitors buoyed by the strong dollar, has helped fill stores. Eduardo Santander, CEO of the European Travel Commission, said the lack of Chinese tourists left the many luxury retailers who relied heavily on them with “a huge sense of loss”, but had spurred “a huge effort to diversify”.
Retailers have personalized their services. During the Covid lockdowns in Europe, sellers reached out to customers via WhatsApp with bespoke recommendations. Berg sees it as “a possible return to the old idea of service and store management from the 1990s, the little black book with all the addresses and preferences of customers”.
“You need to do a lot more to attract local customers,” Berg said. “They can come back, they have more time to spend, unlike a determined and direct international client.”
Zhou said local shoppers at Galeries Lafayette were “detail-oriented.” “Chinese tourists are happiest when shopping,” she said.
Industry analysts expect China’s tourism spending to return to pre-Covid levels by 2025, but that forecast hinges on a relaxation of Beijing’s commitment to its strict “zero-Covid” policy.
And Chinese shoppers are unlikely to be as dominant a force on Europe’s high streets as they were in 2019. Instead, much of their buying power looks set to stay at home.
During the pandemic, Chinese consumers’ luxury purchases have gone from 70% overseas to 70% in China, according to Yaok Group, a Shanghai-based high-end lifestyle consultancy.
“After Covid, we expect armies of tourists to return, with a rebound in ‘revenge spending,'” said Ting Zhou, founder of Yaok Group. “But in the long run, it won’t come back to 70-30. More like 60-40.
To adapt, luxury retailers are expanding their local presence in China.
“The next step is to dig into higher-tier cities outside of Beijing and Shanghai,” Zhou said. After closing a Paris annex built for Chinese shoppers, Galeries Lafayette plans to open its first store in Shenzhen in 2023.
China-based retail sales slumped in the second quarter of this year due to a series of severe shutdowns in Shanghai and Beijing. But in the medium term, forecasts show an increasing overall dominance of Chinese consumers in the global luxury market.
In 2020, the Chinese mainland was the only luxury market in the world to grow year-on-year, according to Bain. And the share of global sales to Chinese nationals reached 46% in 2021, Zhou said. “At their heart, China is the market that luxury groups won’t let go,” she said.
Additional reporting by Nian Liu in Beijing