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[op-ed] How European retailers are getting prepared for the new-generation Chinese tourists ?

Selvane Mohandas du Ménil, Managing Director at International Association of Department Stores, explains the current retail strategies after the reopening of the Chinese borders in January 2023. While department stores have learnt how to survive during and after the pandemic by addressing local shoppers and other nationalities, they eagerly wait to see Chinese tourists back in stores. It is particularly true in Europe, where they represented 50% of luxury sales in 2019.

Through Contributeur externe. Published on 29 May 2023 à 0h22 - Update on 18 September 2023 à 16h20

2022 was not bad for continental Europe retailers: Galeries Lafayette and Printemps in France almost fully recovered to their 2019 levels, while La Rinascente in Italy, Breuninger in Germany or El Corte Inglés in Spain all exceeded either their 2019 sales revenues or profits. This can be attributed to several factors: the strong US$ (an incentive for US tourists to splurge into luxury purchases in Europe), European tourists criss-crossing the continent to spend their Covid-19 savings, the UK decision to scrap the VAT relief channelling clients to Paris, Milan and other destinations, among others.

However, these conjunctural factors are not expected to last. In parallel, while Chinese appetite for luxury has not faded, overseas retailers wonder if they will be able to get a piece of the pie, which is why anxiety about Chinese tourism is mounting. Knowing when exactly they will be back, and what they will be looking for, is key to make sure stores are properly prepared to welcome such customers again.

Will Chinese customers be back on time to save the next season?

According to various sources, a large-scale return of Chinese tourists should be expected in Europe only during the second half of 2023 (either during the summer or the Golden Week in October), while the most pessimistic even mention early 2024. 

It’s not that they do not wish to travel, on the contrary: just after the borders reopened, Fliggy (Alibaba’s travel branch) reported an increase of 200% in travel bookings, while Chinese travel agency Trip.com noted that outbound travel bookings multiplied by 18 times last April. However, long-haul international trips are another story:

-A backlog of passport renewals and visa applications in China after 3 years of closure explains why closer destinations such as Hong Kong, Thailand, Japan or Singapore are easier to visit (not to mention the efforts these countries actively pursue to court Chinese tourists, such as Hong Kong giving away free airline tickets and food vouchers to encourage visits),

-Airline tickets are scarce, as ramping up the frequency of flights takes time and people. For instance, Air France opened 6 weekly flights in May, up from 1 in January, far from the 30 operated pre-pandemic. Add to that a diplomatic arm-wrestling due to the fact that Chinese companies are not restricted to fly over Russia to come to Europe, while European companies see their operational costs increase by more than 20% to go around Russia (due to the war-related restrictions), and this is the perfect cocktail for high flight prices and a lengthy return to normal,

-In addition, China developed its own luxury market during the pandemic, as illustrated by Hainan, the duty-free national mecca, where overall sales doubled in 3 years and customers can find prices which are competitive even with France (while, in the past, the price difference could justify a trip there).

As a consequence, the sight of Chinese tour-operators in European city centers is still a distant idea. On XiaoHongShu (the “Chinese answer to Instagram”), out of all cities mentioned from September 2022 to 23rd of April 2023, only London made it in the top 10 destinations (Paris is on the 13th position). 

This does not mean that Chinese tourism has not resurrected at all. LVMH’s CFO mentioned that a new breed of Chinese tourists, traveling as individuals and not in tours anymore, was spotted across the globe. This raises another question, about the very nature of these post-pandemic Chinese tourists.

Who are the Chinese tourists currently travelling to Europe?

So far, they are wealthier, with a higher education background, and probably more demanding than the ones coming to Europe in tours before the pandemic. This is not to be taken lightly:

-They favour safe and Chinese-friendly places, i.e. countries that offer easy access to visa and security. For instance, Italy is taking the lead over France when it comes to visas. While French retailers are pressurizing the government to speed up the flights ramp-up, Italy lowered the visa application cost, a smart move given that the first country visited usually pockets a significant share of tourists’ budgets. Security also explains the rise of newcomers, such as Balkan countries (Montenegro, Croatia, Georgia), seen safer than traditional destinations. They are highly digital, well-informed, and unresponsive to clichés (such as rabbit-shaped products for the year of the rabbit). They favour experience and discovery over products, and are also extremely interested in wellness and health-related options. Some of them even combine business trips and leisure travel, which raises questions in terms of how to accommodate such customers.

-In short, recipes of the past won’t work. First, retailers’ attractivity should not be taken for granted, and the ones who invested during the pandemic to overhaul their shopping experience (such as Le Printemps’s revamp or the Galeries Lafayette flagship store renovating its cupola) will reap the benefits of their patience. Second, Chinese customers will be expecting a very different set of products and services, which should come as a justification for such a travel. In other words, European retailers are now facing competition from China itself when it comes to tourists visiting their stores, and the risk of disappointment is real.

How are retailers preparing themselves?

The reopening of Galeries Lafayette’s Shopping and Welcome centre last month, a 2,800 sqm space dedicated to the Asian clientele after 3 years of closure, is only the visible part of the iceberg on how Europe is preparing itself to welcoming back Chinese customers. It would be misleading however to believe that retailers rely on old recipes to welcome these new-gen tourists.

First of all, they are preparing through a total reinvention of their product offer:

-While they had to cap that category during the lockdown, stores are muscling their ultra-luxury offer, mirroring what brands are doing either at home (with the opening of mega-flagship such as Dior or Cartier in Paris) or China (with salons only opened to ultra HNWY in the Chanel, Louis Vuitton and Gucci stores at SKP). This translates into new and larger spaces (such as the new Rolex boutique in Galeries Lafayette or the double-deck stores in El Corte Inglés) but also the multiplication of takeovers, as seen in Harrods (Louis Vuitton, Dior, Celine) or KaDeWe (Dior). When it comes to the category, it is all about stocking up bags and hard luxury goods over RTW, which implies difficult negotiations with brands who prefer to keep these high-margin products for themselves.

-They also focus on curating new brands, to provide younger customers (84% of Chinese travellers are Millennials and Gen X) uniqueness and originality with niche product offering. This is why Breuninger has opened B-Spaces, designed to provide a radically and highly curated selection of products.

-Surfing on the growing interest from Chinese customers for fragrances, perfume bars are reinvented:  Printemps and KaDeWe both redesigned their spaces. More generally, wellness is growing in China, as Covid had consequences on mental health. As a consequence, gyms are opening everywhere in the country, and wellness is now a trend which means that new offerings such as Galeries Lafayette’s “La Wellness Galerie” could prove to be a mastermind move.

However, as mentioned, retailers also adapt to the fact that Chinese customers look beyond products (8 out of 10 favour experiences):

-They crave for in-store experience (a common sight at home in places such as SKP-S). This is why luxury brands’ flagship stores and initiatives (such as LV Dream’s restaurant) should attract crowds, and retailers develop new concepts, such as WOW in Madrid. Also, culinary experiences are now key in department stores, which is why the first Michelin-starred restaurant opened in a department store, at El Corte Inglés.

-Services are crucial, as Chinese customers do not wish anymore to queue for hours outside of a store. They prefer connecting with a local sales associate who knows them and can advise them. This pushes retailers to invest in their CRM, such as Magasin du Nord. Also, being able to deliver products at their hotel, or offering them click & collect for products selected when in China for pick-up while in the store, are services that are being developed. Every detail counts: at La Samaritaine, automatic tax-free kiosks are a competitive advantage for customers valuing speed and convenience.

-Overall, retailers are developing “China-ready” teams, including Chinese speakers, translating point-of-sale material, and offering Chinese payment systems (China UnionPay, Alipay, WeChat Pay). Such teams are also trained to learn the culture codes and avoid any misstep.

The most difficult will be, however, to stand out of the crowd not only by being perceived as the “must-be” visited place, but also by being visible where Chinese customers look for information, i.e. the appropriate social media (60% of wealthy Chinese customers research a product online before buying it). Retailers have to make a choice, as there are significant differences between WeChat (where Harrods launched branded stickers), Tmall (where El Corte Inglés has a store) and others. That also implies having a dedicated content and marketing team, understanding the market to partner with the rights KOLs, and a Chinese-focused promotional calendar (while CNY and Golden Week used to be the main events, Single Day, Couple Day and Women’s Day are now significant opportunities).

Finally, CRM systems that companies have rushed to deploy in the past few years will be delivering their full value, especially trans-national ones. Central Thailand’s unified system, which allows customers to accumulate points when indifferently shopping at la Rinascente (Italy), Illum (Denmark), Globus (Switzerland) or Selfridges (UK) represent, for instance, a good use case that should appeal to Chinese customers when travelling in Europe.

Selvane du Ménil, Managing Director at International Association of Department Stores