Over the past year, Chinese consumers traveled more and spent more on retail purchases overseas than they did in the prior year, driving retail spending at tourist destinations globally. Billions of dollars are flowing to retailers worldwide from these travelers. They are already the world’s biggest spenders, accounting for an estimated US$201 billion in retail purchases in 2015. By 2020, we estimate that 186 million Chinese tourists will travel overseas, and that their total overseas spending will reach US$349 billion per year.
Who are these consumers, what were their overseas travel and shopping habits, and how will their preferences impact brands and retailers? Our initial survey of Chinese tourism and overseas retail spending was featured in our 2015 report Global Chinese Shoppers: The $200 Billion Opportunity. This year, together with China Luxury Advisors, we conducted our second annual proprietary survey of Chinese overseas tourists’ travel and spending, polling 877 Chinese Internet users from March 28 to April 12, 2016, in order to gain insight into Chinese travelers’ shopping behavior. This year’s survey included additional questions regarding respondents’ shopping behavior while overseas and their future travel and spending plans. We used our 2015 survey, conducted in May of last year, and our Global Chinese Shoppers: The $200 Billion Opportunity report as a basis for comparing how this demographic’s shopping behavior has changed over the past 12 months.
This report provides a thorough analysis of the 2016 data as well as a comparison with 2015’s data, along with an update to Fung Global Retail & Technology’s proprietary estimates of current and future Chinese tourist numbers and overseas spending. It also includes case studies of how retailers, brands and shopping venues are engaging with Chinese tourists. This information is intended to help retailers and brands better understand the opportunities offered by the surging numbers of Chinese consumers shopping overseas and help them identify ways to meet the needs of these consumers.
According to the information provided by the Chinese Internet users who responded to our 2016 survey:
Shopping Destinations and Budgets
Products and Shopping Outlets
Future Travel Plans
Implications for Brands and Retailers
Over the past year, Chinese consumers traveled more and spent more on retail purchases overseas than they did in the previous 12 months, driving retail spending at tourist destinations globally—and these numbers are expected to continue to grow.
Billions of dollars are already flowing to retailers worldwide from these travelers. They are now the world’s biggest spenders among travelers, with an estimated 2016 spend of US$229 billion. Who are these consumers and how can retailers in the world’s tourist destinations prepare to meet their growing numbers?
Our Exclusive Consumer Survey
To help retailers better understand these consumers and how to best meet their needs, Fung Global Retail & Technology, together with China Luxury Advisors, commissioned a second annual survey of Chinese consumers who travel abroad. We again sought to define the most popular destinations for Chinese travelers, how much they spend on purchases while overseas and what they purchase. In addition, new questions in this year’s survey provided information regarding Chinese overseas travelers’ shopping behavior and their future travel and spending plans.
In this section, we analyze the survey data to provide insight into the characteristics and behaviors of Chinese shoppers abroad. We have layered in demographic, income and travel destination analysis where applicable.
Reading the Data
This year’s survey was conducted from March 28 to April 12. The respondents were asked to answer the survey questions based on their experience in the past 12 months, except for questions related to their future travel and spending plans. The figures cited are representative of the online population of China, as the survey was conducted online among 877 Internet users in China.
The survey results show the percentage of respondents who selected a certain response. All figures should be read as percentage of the respondent base.
For our 2016 spending estimates, we used an average foreign exchange rate for March 28–April 12 from S&P Capital IQ when converting the renminbi (CNY, yuan) to the US dollar (USD), resulting in a rate of ¥6.3617 to US$1.00 (¥1 to US$0.1572).
A Demographic Profile of Survey Respondents
Of the 877 survey respondents, 86% were 40 years old or younger.
Who Is Traveling and Where Do They Go?
There was a noticeable increase in overseas travel among survey respondents this year compared to last year, when around two-thirds of respondents traveled abroad. Both years’ surveys indicate that international travel rates tend to increase in accordance with higher household income. In this year’s survey, 97.6% of those from the highest income band (those with net monthly household income of more than US$6,288//¥40,000) traveled abroad.
However, this year, there was also an increase in the percentage of respondents from lower income bands who said they had made a recent trip abroad: 88.5% of those from the lowest income band (those with net monthly household income of less than US$393/¥2,500) said they had traveled abroad, and 81.9% of those from the second-lowest income band (US$393–US$786/¥2,500–¥5,000) said they had traveled abroad. In last year’s survey, 47% of those from the lowest income band (less than US$488/¥2,500) and 37% of those from the second-lowest income band (US$488–US$651/¥2,500–/¥5,000) reported that they had traveled abroad in the previous 12 months.
The US became a more attractive destination for Chinese tourists in 2015, after a new policy took effect on November 12, 2014, that extended multiple-entry short-term tourist and business travelers’ visas from one year to 10 years. In addition, last year, President Barack Obama and President Xi Jinping announced that, as part of a cooperative tourism initiative, 2016 would be the US-China Tourism Year. The effort appears to also have boosted overseas travel to the US.
A Closer Look at Travelers to the US
A Look at the Other Popular Destinations
Our survey showed that countries in Southeast Asia remain attractive to Chinese tourists, with the second- and third-most-popular destinations all belonging to this region. Thailand traditionally attracts Chinese travelers, and the country ranked second in popularity among respondents to our survey this year. Hong Kong, which official statistics indicate is the most common destination for Chinese travelers, ranked third among those surveyed, with 11.3% saying they had visited the city on their most recent trip.
Surprisingly, Japan was not among the top five countries that respondents said they had visited on their most recent trip. Only 3.6% of those surveyed said they had visited the country. This is likely due to the strengthening of the yen relative to the renminbi in the early months of 2016.
How Much Do Chinese Travelers Spend?
How Much Chinese Tourists Spend Abroad, by Country Visited
Our survey shows that:
In this year’s survey, a large proportion of respondents who had visited Taiwan recently said they spent the most at outlet stores (38.4%) and large department stores (36.7%). Travelers purchasing at these two types of stores tend to spend more overall than those who shop at other types of stores, such as duty-free shops and supermarkets, which may explain their high spending levels this year.
Below, we chart the raw survey data behind our per-visitor spending estimates by country, showing respondents’ retail spending on their most recent trip abroad for each income band:
How Much Chinese Tourists Spend Abroad, by Household Income
As we move up the income scale, we see spending levels shift away from the lower end of the spectrum toward the higher end, which is consistent with our findings from last year’s survey. Those with the highest income spent the most, while those with the lowest income level spent the least.
What Do Chinese Tourists Buy When Traveling Abroad?
We asked our survey respondents which types of products they had purchased on their most recent overseas trip. Respondents could choose more than one answer for this question. Fragrances and beauty products comprised the most popular category in this year’s survey (purchased by 66.5% of travelers), while clothing, footwear and accessories ranked a close second (at 63.2%). Health supplements and vitamins remained popular, with close to a quarter (24.9%) of respondents saying they had bought products in this category. However, the number of shoppers who purchased electronics (e.g., smartphones, tablet computers, etc.) declined to 19.2% this year from 32% last year.
The two graphs below show how much survey respondents spent on various retail categories during their most recent overseas trip.
Popular Shopping Categories by Destination
We analyzed the popularity of the items survey respondents bought on their last overseas trip, based on the location visited, and found that:
Where Do Chinese Tourists Traveling Abroad Spend?
To understand Chinese shoppers better, in this year’s survey, we asked a number of questions that we did not ask last year. These included questions about respondents’ shopping outlets of choice as well as their future travel and spending plans.
We also analyzed respondents’ choice of shopping outlet based on their overall spending while traveling:
Of travelers who spent the most at outlet stores, 24.7% spent US$1,179–US$1,572 (¥7,501–¥10,000) overall during their recent overseas trip.
Of those who spent the most at specialty stores, 25.3% spent US$393–US$786 (¥2,500–¥5,000) overall during their recent overseas trip.
Of those who spent the most at supermarkets, 21.1% spent less than US$393 (¥2,500) overall during their recent overseas trip.
Popular Shopping Destinations, by Type of Outlet
While duty-free shopping is popular in a number of destinations, including the US and Thailand, duty-free stores enjoy the greatest popularity in South Korea; more than half (56.3%) of Chinese travelers surveyed who had visited South Korea said they spent the most at duty-free shops.
An exception is Taiwan, where duty-free stores are far less popular than outlet stores and large department stores are. Among survey respondents who had visited Taiwan, 38.3% said they had spent the most at outlet stores and 36.7% said they had spent the most at large department stores, while only 11.7% said they had spent the most at duty-free stores.
Future Travel and Spending Plans
We asked our survey respondents whether they plan to spend more, less or the same amount on different categories while traveling overseas in the next 12 months compared to the previous 12 months. We also asked them whether they plan to travel as a group or on their own on their next overseas trip, and what resources they are going to use in planning their trip.
Our survey findings show a clear trend of travelers planning to increase their spending on future trips. In addition, they point to a more confident and independent traveler. More than half of respondents said they are planning to make their own travel arrangements and almost 45% said they will travel without a tour guide.
Are Chinese Overseas Tourists Planning to Travel in Groups or Alone?
Resources Most Often Used for Planning Trips
For 2016, we have extrapolated the survey-derived average spending figure of US$1,783 for the 12 months ended April 12, 2016, and used it as the average per-capita spending amount for all of 2016 for Chinese outbound travelers. Using the same approach, we have adjusted our 2015 estimate down to US$201 billion from US$229 billion, based on the updated estimate of 120 million outbound tourists in 2015.
In addition to increasing per-capita spend, an explosion in traveler numbers from China in recent years has underpinned the boom in overseas spending. However, even though China has generated impressive outbound-tourism growth in the last decade, such tourism is still in a nascent stage, with a penetration level of 9% (outbound tourists as a percent of total population).
A 19.5% rise in outbound passenger numbers took the total above 100 million journeys for the first time in 2014, according to data from China’s National Tourism Administration, and the number of outbound passengers increased to 120 million in 2015. In the first half of 2016, the China Tourism Academy and Ctrip, an online provider of travel services, estimate that China had 59 million outbound travelers, a 4.3% increase over the same period in 2015.
Fung Global Retail & Technology estimates that total journey numbers will grow to 129 million by the end of 2016, and by a further 11 million, to 140 million, in 2017. We estimate that total outbound passenger journeys will reach 186 million by 2020.
These projections are supported by the continued, albeit slower, growth of the Chinese domestic economy and by the fact that this growth is lifting millions of Chinese into the middle class. Improved affordability, easing travel restrictions and the desire to travel will support an incremental 66 million Chinese outbound travelers by 2020, we forecast, even though we have adjusted the number of journeys down compared with the figure cited in our 2015 report.
The adjustment in our projections from last year’s report is based on the observed decrease in outbound travelers to Hong Kong and Macau. Travelers to Hong Kong accounted for approximately 35% of all outbound trips from the Mainland in the first half of 2016, but that figure was down 10.6% from the same period last year, according to data from the Hong Kong Tourism Board. Mainland visitors to Macau decreased by 0.4% in the first half of 2016, after 2015 saw a 4% decline in visitors compared to 2014.
In addition, growth in cross-border e-commerce in China—111.9% in 2015—impacted growth in the number of outbound shoppers in the first half of 2016. Even though the Chinese government revised the regulations governing the import of cross-border e-commerce goods in April, increasing the tariff on some categories of goods, we expect the growth in the channel to continue. The development and increasing adoption of cross-border e-commerce will take away some of the incentive for outbound travelers traveling solely with shopping in mind.
What to Watch for in Future Years
In forecasting Chinese tourism spending in the years ahead, we took the following factors into account:
We note that there are also factors that could dampen estimates of future market growth:
Because of these trends, we think the average spend per tourist could stagnate in coming years. We do not think this will happen in the immediate future—but our forecasts factor in slowing per-capita spending growth in the years through 2020.
The travel and spending patterns of Chinese tourists are affected by a number of factors, including changes in exchange rates and the pricing strategies of brands and retailers in different regions. In our 2015 report Global Chinese Shoppers: The $200 Billion Opportunity, we discussed the impact of new restrictions, enacted in April 2015, on Chinese visitors entering Hong Kong. We also discussed currency volatility and the long-term effects of trends such as increasing paid time off in China and the effect of parent tourism as more Chinese students opt to pursue their university education abroad.
In this section, we focus on the recent market developments that might have caused the changes we have observed in this year’s survey results compared to last year’s. We look at information from government announcements, tourism boards and retailers’ annual reports to provide context for the trends shown by our survey data.
Visa and Tourism Policies Boosting International Travel
Supportive visa and tourism policies help boost international travel. Our survey results show a substantial increase in the number of Chinese travelers to the US, up from 3.2% last year to 13.2% this year. We believe this is largely due to the relaxed visa regime and the US-China joint marketing effort to increase tourism. The two countries declared 2016 the US-China Tourism Year after agreeing to extend the duration of visas for short-term business travelers, tourists and students to 10 years. The increase in the number of travelers to the US is a key reason the average retail spend per trip has increased year over year—our data show that Chinese travelers to the US spent 46.6% more per trip than the average Chinese overseas tourist did.
Looking forward, we anticipate that the pattern of outbound tourists from China will reflect the relaxing of travel conditions for countries such as the UK and Malaysia. Starting in January 2016, the UK extended standard visitor visas from six months to two years for tourists from Mainland China and decreased the application cost from £324 to £85, a 75% decrease. At the same time, the UK government has a plan to introduce a new, 10-year multi-entry visa for Chinese tourists. Malaysia also introduced measures to facilitate visa application. The Ministry of Tourism and Culture of Malaysia launched an e-visa program in March 2016. The country introduced a visa-free entry program for Chinese tourists, which allows them to stay in Malaysia for a period not exceeding 15 days if they meet certain conditions.
Price Harmonization Impacts European Luxury Apparel
To reduce price gaps between regions, luxury brands such as Prada, Chanel and Hugo Boss have adopted price harmonization strategies. At the same time, other luxury companies such as LVMH have made strong statements against price harmonization measures. This means the impact of these initiatives is more brand-specific than industry-wide. Nonetheless, reports from various luxury brands seem to indicate that price harmonization has affected some Chinese tourists’ decisions about purchasing the same luxury products at home versus abroad.
The price adjustments helped Prada increase its gross margin and reduce costs in 2015, according to its annual report. Hugo Boss rolled out price adjustments in early 2016 that it said were received positively by consumers in Mainland China. The company aligned prices in China with those in Europe by implementing a reduction of around 20%, effective with the launch of its spring 2016 collection. In Mainland China, the price adjustments, together with digital communication activities, led to an increase in volumes of around 10% during the period. However, Hugo Boss also said that there was a decline in purchases made by tourists in Europe, where sales fell by 2% (1% adjusted for currency effects) in the first quarter of 2016.
Our 2016 survey suggests that Chinese overseas travelers are shifting away from Western European markets, even though Europe in general still remains relevant, with 17.9% of respondents indicating they had traveled to the region. We believe this shift is due in part to the price harmonization initiatives by luxury brands—even though anti-graft measures in China and the higher level of sophistication of the Chinese consumer should not be discounted as major trends that are also continuing to impact this market segment.
Retailers and businesses are looking for ways to court the growing number of Chinese travelers globally. For example, the Mall of the Emirates in Dubai launched a digital shopping app for Chinese consumers and Hilton hotels introduced TV channels in Chinese. In the following section, we present case studies of some other companies that are catering to the Chinese traveler in the US and South Korea.
US: Yellowstone National Park and City Creek Center
Shopping is a priority for many Chinese tourists when they visit the US, but it is often America’s national parks that capture their hearts. The breathtaking views of these parks provide Chinese visitors with an escape from urban chaos as well as bragging rights among their peers when they post pictures of the parks on social media. According to the US Department of the Interior, approximately 40% of the 2.2 million Chinese tourists who visited the US in 2014 visited at least one national park or monument during their stay. The draw of the parks is taking Chinese visitors off the beaten path, bringing new business growth to locations beyond the US gateway cities of Los Angeles, New York and San Francisco.
Salt Lake City, Utah, for example, was virtually unknown to Chinese visitors until very recently. In the past few summers, however, the city has enjoyed a surge of Chinese tourists passing through en route to Yellowstone National Park, one of the most aspirational attractions for Chinese travelers visiting the US. More than 300,000 Chinese visited the park in 2014, and that number was expected to have reached nearly half a million by the end of 2015.
Tianyu Yu, President and Founder of U.S. Day Joys, a travel agency based in Salt Lake City, said his company worked with more than 300 Chinese tour groups, averaging 25–40 guests each, traveling to Salt Lake City and Yellowstone last summer.
City Creek Center, Salt Lake City’s premier shopping destination, is seizing the opportunity presented by Chinese visitors passing through the city. The shopping center has launched a series of tourism initiatives to attract Chinese visitors:
South Korea: Retailers and Beauty Brands
Chinese consumers are heavily influenced by South Korean pop culture, and South Korean brands and retailers are capitalizing on it, increasing their share of Chinese consumers’ spending. South Korean cosmetics exports to China surged by 250% in 2015, and accounted for almost 25% of all of China’s imported cosmetics, a 126% increase from 2014. This has caused a decline in Western brands’ market share of foreign beauty products in China, which decreased by 4.8% for skincare and by 3.8% for color cosmetics in 2014, according to Luxury Daily.
According to the South Korean Trade Ministry and Customs Office, “Sales of cosmetics [have been] supported by the popularity of Korean movies, music and TV programs, leading to a preference for local cosmetics brands.” Examples of Korean pop culture’s influence on Chinese consumers include the following:
Highly Engaging Digital Presence
South Korean brands and retailers have been quick to adapt to Chinese social media platforms, too, and to produce culturally relevant, engaging content. For example:
Visiting South Korea is a necessity for many Chinese fans of K-pop. Chinese arrivals to South Korea rose by 5.7% year over year in February 2016, to 546,408. This represented an overwhelming 48.5% of all visitors to South Korea—and underlined the travel retail sector’s reliance on Chinese tourists. In January 2016, Chinese arrivals rose by 32.4% year over year. Chinese visitor numbers increased by 17.3%, to 1.07 million, within the first two months of 2016, according to the Korea Tourism Organization.
South Korean department stores and duty-free stores are catering to Chinese tourists by offering digital vouchers for free car rides to stores and aggressive, tiered, gift-with-purchase promotions. Other strategies include:
We expect to see continued success from South Korean brands and retailers, and for more and more Western brands to take advantage of the country’s popular entertainment platforms and celebrities to attract Chinese consumers.
Our second annual proprietary survey of Chinese outbound tourists, conducted together with China Luxury Advisors, shows that more respondents traveled overseas during the 12 months ended April 12, 2016, than did in the 12 months ended May 21, 2015. It also shows that they spent more on retail purchases during their overseas trips and that they plan to spend more on future trips. Furthermore, the supportive visa and tourism policies of the governments of various countries have helped increase Chinese outbound travel even more. Fung Global Retail & Technology estimates that, by 2020, total overseas spending by the 186 million Chinese projected to travel overseas will be US$349 billion per year, up from an estimated US$229 billion in 2016.
As the number of Chinese tourists continues to grow, the landscape continues to change. Middle-class incomes are rising in China, enabling millions of Chinese to take their first overseas trips. Increasing numbers of Chinese consumers will be joining group tours and visiting the world’s biggest cities and most popular destinations.
Meanwhile, the number of experienced travelers will continue to rise as more Chinese tourists take their second, third and fourth trips overseas. In the process, they will become more confident traveling on their own and increasingly seek unique and personalized experiences. These experienced travelers are more likely to travel on their own, eschewing typical Chinese group tours. Those who do participate in group tours are more likely to seek out small groups that cater to their particular interests or traveling style.
As this landscape changes, we expect to see the following trends:
As a result of these trends, we expect both group and individual travel to increase in terms of absolute tourist numbers, with individual travelers accounting for a greater percentage of the total. We also expect overall spending by Chinese tourists to continue to grow rapidly—but we think the growth of the average spend per tourist could start to moderate in the years ahead as more middle-income tourists travel overseas.
Implications for Global Brands and Retailers
As purchasing patterns evolve, retailers and brands need to evaluate their Chinese consumer strategy from a global standpoint. Investment in brand building with Chinese consumers can produce gains on a global basis, not just in China. The Chinese consumer is a global shopper, comparing merchandise and pricing across borders. Today’s global brands and retailers need to adapt their strategies to account for a new type of customer that transcends typical country P&Ls.
These strategic considerations include marketing as well as retail strategy. With the majority of Chinese luxury purchases made outside China, companies must carefully consider their Mainland China retail strategy. This is particularly true given high demand for prime retail locations, high rents and intense competition among retailers.
Brands also need to carefully evaluate their Chinese consumer e-commerce strategies, taking into account consumer shopping preferences, pricing disparities, and trust and authenticity assurances. They should closely watch trends in overseas e-commerce and monitor pricing and availability across channels.
How can retailers and brands engage this large and growing market of consumers?
Be Aware of Changing Consumer Habits
As Chinese customers increasingly travel independently and explore new destinations, it is important for retailers to continually upgrade their Chinese consumer strategies and tactics, and ensure that they are not relying on outdated methods that ignore the rising number of experienced, young, individual travelers. But companies must pay attention to new trends in the way all Chinese consumers travel and purchase abroad—not just the habits of young and experienced individual travelers—in order to successfully tap the Chinese overseas tourist market. For instance, according to our survey, duty-free shops are the most popular type of shopping outlet among Chinese tourists who shop overseas.
Adapt Services for Chinese Customers
Our research also shows that some businesses overseas are already adapting to cater to the increasing number of Chinese travelers. One example is the Mall of the Emirates in Dubai, which launched a digital app designed especially for Chinese shoppers in April 2016. We expect more retailers to follow suit globally, increasing the level of competition among shopping destinations. Services such as reliable, high-speed Wi-Fi and on-site language support for Chinese shoppers are basics that retailers will need to provide in order to attract Chinese travelers. In addition, we suggest retailers and brands evaluate using WeChat to augment the in-store customer experience and provide after-sales customer service. And lastly, even though retail businesses should move to attract a younger, more international Chinese shopper, they should not forget that, oftentimes, tourists travel with their families, making a case for offering multigenerational, child-friendly experiences and services.
Invest in Customer Acquisition and Retention
Retailers and brands can engage with Chinese travelers even before these consumers leave their home country. Businesses need to consider a customer acquisition strategy that relies on building awareness through digital channels such as a Chinese website (optimized for mobile), maintaining a compelling and interactive presence on Chinese social media platforms, and using Chinese key opinion leaders or influencers. Once inside the store, shoppers need to be able to create and share content in an interactive way to generate positive buzz and word of mouth. To boost retention rates, retailers should consider deploying loyalty programs tailored to Chinese shoppers that will incentivize them to return to stores on future trips.
Monitor Exchange Rate Fluctuations
Chinese consumers’ travel and spending patterns, including their choice of travel destination and their decision to purchase luxury products at home versus abroad, are affected by fluctuations in exchange rates—and their behavior patterns may change from time to time. Brands should pay attention to changes in these market factors and adjust their strategies accordingly, such as by offering different product prices in different regions, in order to better position themselves to capture the opportunities presented by the boom in Chinese outbound travel.
About Fung Global Retail & Technology
Fung Global Retail & Technology is a think tank that follows emerging retail and technology trends. The team’s researchers and analysts, based in New York, London and Hong Kong, specialize in the ways retail and technology intersect, and in building collaborative communities.
Managing Director Deborah Weinswig leads the team. A former top Wall Street and retail technology analyst, Weinswig publishes ongoing thematic and global market research on topics such as the Internet of Things, digital payments, omni-channel retail, luxury and fashion trends, and disruptive technologies in addition to advising startups around the globe.
About China Luxury Advisors
China Luxury Advisors is a boutique consultancy that helps brands, retailers, tourism organizations and destinations increase their business with Chinese customers. Visit www.chinaluxuryadvisors.com for more information or contact:
Renee Hartmann at firstname.lastname@example.org: