What are Chinese tourists looking forward the most when they travel abroad?
Chinese Luxury consumers will think “Chanel, Prada, Vuitton ”
A growing wave of Chinese is benefiting from more direct flights to the main shopping European shopping centre. The Chinese Lunar New Year holiday is definitely an ideal time for most of the 110 millions to travel abroad and buy their fill of luxury goods : Vuitton, Cartier, Prada, you name it.
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Meanwhile, European luxury brands companies anticipates this wave of new customers coming from the Middle Empire and welcome it with open arms with new strategies such as offering guided tour specifically tailored for Mandarin speakers or V.I.P access to runway shows in order to give them memorable experience they can shar with their fellow countrymen once back home. American companies are falling behind but some companies have already started to hire Mandarin-speaking staff or hold special events.
Storied European brands like Burberry, Hermès and Dior can be bought in high-end shops and shopping malls of major Chinese cities, of course. But for reasons including higher taxes in China and lower prices in Europe, Chinese consumers, who buy more luxury products than shoppers of any other nationality, prefer to do their buying abroad. Of the more than $80 billion in Chinese purchases of personal luxury goods last year, two-thirds were made outside China.
Sure, major players in the luxury sector can be found in China’s top tiers cities but the steep prices caused by heavy taxation push the local customers abroad where they can find the goods in average 40% to 60% cheaper. No wonder then that two third of the $80 billion in Chinese purchase of personal goods last year were made outside China.
Flagging demand in China itself was a factor cited last week by the Paris-based LVMH Moët Hennessy Louis Vuitton, the world’s largest luxury goods group, for the company’s flat profit last year. That is all the more reason the company and many of its peers are starting to plow more money into European showcases and shift investments away from the Chinese mainland.
Many major companies such as the group LVMH Moët Henessy Louis Vuitton are shifting their focus and investments outside China where there is the most potential and a lot less taxes.
Last year for instance Louis Vuitton opened a massive three-store 10000-square-foot “townhouse”atop a Selfridges department store on Oxford Street in London.
Marketing experts are calling this trend a major shift in the brand strategies. They highlight the companies’ brand new structures and the way they market themselves in order to react more quickly to a quickly ever-changing market.
In catering to the Chinese shopper, some European makers of luxury goods seek to leverage their brands’ heritage and savoir-faire by conducting tours of their landmark European stores — or even setting up museums in them, as Vuitton has done with its “Espace Culturel” on the Champs-Élysées in Paris. Others organize invitation-only demonstrations of the craftsmanship that goes into the products, which companies and analysts say holds a particular appeal for Chinese visitors.
Giving Chinese shopper a good image of their company is critical to transform customers into highly efficient brand ambassadors. European makers of luxury goods market their heritage and savoir-faire by setting tours in their most famous facilities or even setting up museums. Showing the brand history is always a good way to give shoppers a good and lasting memory.
Others organize V.I.P demonstrations of craftsmanship particularly appreciated by Chinese shoppers
China impact on luxury sales
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Gieves & Hawkes, the 240-year-old London tailor, for example, lures Chinese groups away from the bustle of Bond Street to its store at 1 Savile Row, which houses an extensive archive of royal and military regalia dating to the 18th century. The visit, which is translated by a Mandarin-speaking guide, includes a stop in the store’s bespoke workshop, where the company still hand-sews 1,000 suits a year.
“In terms of seeing all the components of a luxury brand, it is very immersive,” said Simon Baker, marketing director for the company, which has more than 100 stores in China. “Our Chinese guests are looking to learn what being dressed by a Savile Row tailor is all about, and why it is more luxurious and prestigious.”
Highly prestigious brands such as Gieves&Hawkes, a tailor with a 240-years-old experience in London want to provide more than simply goods. They want to provide an experience and make their Chinese customer fully aware of what it means to wear their suits or carry their bags.
Other focus on working with travel agencies and hotels favored by most Chinese tourists in order to bring more Chinese customers into their shops
Zegna has also followed brands like Louis Vuitton and Burberry, already active on the social media platform Sina Weibo, in creating an official account on the wildly popular mobile messaging service Weixin — known outside China as WeChat — to which the Chinese are turning more and more during their overseas travels. So has Harrods, the London department store, which counts Chinese visitors as its largest foreign customer group.
Finally others use the growing trend of social Media and their diverse plateforms such as Sina Weibo, the Chinese Twitter, Weixin, known abroad as Wechat in order to reach the customers at home.
According to analysts such efforts are critical in marketing to attract the visiting consumer and selling individual wares.
Chinese demand for luxury to increase again:
William Mack, equity analyst at S&P Capital IQ Equity Research, explains why he is positive on the luxury goods industry and reveals what his top picks are for the sector. William Mack, equity analyst at S&P Capital IQ Equity Research demonstrates why he roots for the luxury goods industry and the main parameters for the sector. First, forget geography, think demography. M.Guarino add “ Some have 150 shops located in China but their cash registers in Europe or in the US.
Just how dependent the European luxury sector has become on Chinese visitors became starkly evident late last year. In October, China passed a consumer-protection law prohibiting travel agencies from subsidizing group tours to Europe by including mandatory stops at high-end department stores like Galeries Lafayette in Paris or La Rinascente in Milan.
It has become clear that the European luxury cannot survive without its Chinese clientele. Captive buying done by mandatory stops subsidized by travel agencies represented about 40% of the total luxury goods sales. Alas Beijing, judging this system misleading passed a law prohibiting such methods.
The law had a striking effect on Chinese tourists’ luxury spending in the fourth quarter, halving sales growth across the European Union to 9.5 percent compared with growth rates of 20 percent or more in the preceding three quarters of last year.
This law had a noticeable effect on Chinese tourists’ luxury spending in the fourth quarter, causing the sales to drop by 50% across the European Union down to 9.5%. However, according to experts in the grand scheme of things this doesn’t change much because other factors have a much bigger effect such as higher taxes in mainland China. Renaissance Capital, a Russian investment bank, cites the example of luxury handbags usually selling for $1000 to 5000$ cost 30% less in Europe than in mainland China.
The price gap is further widened by China’s high taxes on consumers. On top of an import duty of 10 percent, Beijing levies a value-added tax of 17 percent and sales taxes that can range from 5 percent to 20 percent, depending on the item. Some other Chinese cities add taxes as well.
Tax-wise we are talking about a first 10% for import duty added to a value-added tax of 17% and sales taxes ranging from 5% to 20% depending to the item. On top of that, let’s not forget some tax applied by some Chinese cities
On the other end of the spectrum, in the European Union, foreign tourists spending more than 175 Euros in the same store on the same day are entitled to a rebate on the value-added tax normally around 20% in most countries.
Chinese consumers and social media :It’s all about sharing prices and experiences.
Chinese consumers’ embrace of the Internet and social media platforms like Sina Weibo has also increased access to information about luxury goods abroad, allowing them to comparison shop before they even board a plane. Applications like Weixin (Named Wechat outside China) let people share their foreign shopping experiences in real time, check prices and send photos as they weigh their purchases ; or even take orders on behalf of friends back home.
Armed with these digital tools, a growing number of Chinese travelers, particularly younger ones, are forgoing the classic group tours and venturing abroad independently. That trend, with the ban on commission-subsidized tours, is driving more tourists to explore beyond the big European flagship stores in the fanciest districts, analysts said.
It also exposes entrenched legacy brands to intense competition in China from increasingly popular rivals like Bottega Veneta of Italy or Mulberry of Britain.
The large presence of digital media and more globally the Internet, allow Chinese to very quickly know all about brands and product information in real time before even choosing their destinations. Applications like Weixin focusing on friend circles allow people to share their impressions and informations with their friends. All in all, information travels much faster and is much more difficult to control.
This represents a major challenge for the brands, forcing them to completely rethink their strategies and go beyond the classic high-end big stores. In addition, faster information means harder competition. In this market, with these media that have reshaped the landscape of luxury goods, it is definitely the survival of the fittest and the most adaptive. With these changes, increasingly popular brands such as Bottega Veneta of Italy or Mulberry of Britain can hold their ground against the giants of the sector.
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