Posted on May 29, 2013
Inbound Chinese Continue To Drive Luxury Spending
As the summer tourism season heats up, luxury retailers around the world are anxiously watching early Chinese tourism estimates. After nine months of lean times, they are eager to glean insights on projected sales during the key summer tourism season.
During the past week, our research team has lurked in some of America’s top tourism sites, from Disneyland to La Jolla, from Manhattan’s 5th Avenue to the Clara Barton Memorial Rest Area on the New Jersey Turnpike, and from affluent Fairfax County to our nation’s capital.
All indications are that, despite the dramatic reduction of government-related travel, inbound Chinese tourist arrivals continue to build and to drive luxury spending. More and more Mandarin is being spoken in key locations and the number of both individual and group tours is on the rise.
More importantly, the retailers that we would expect to recover fastest from the recent swoon in luxury purchases by the global Chinese demographic have, in fact, recovered in terms of year-on-year sales in May – even if the sales mix has changed.
The four months from July to October represent peak travel and spending months for Chinese customers, and given the concerns about China’s crackdown on corruption and its effects on the luxury market, many retailers are simply hoping that this year’s sales will match last year’s numbers, let alone return to the hyper-growth environment of 2010-2012.
Early indications, particularly in the United States, are that the outlook for this year’s peak travel season is solid. Although government-related travel is drastically lower than the year-ago period—some well-placed sources claim a 90 percent reduction in trips by Chinese government officials—overall travel volume continues to increase, with both first-time and repeat travelers seeking novel experiences and destinations.
In addition to this growing collection of anecdotal evidence, positive data-driven indications we have noted during the last month include:
Optimistic Outlook for Chinese Tour Operators. The U.S. Department of Commerce recently released results from a survey of China-basedtour operators on their expectations for 2013 bookings to America versus 2012. 81 percent of the tour operators surveyed projected higher bookings in Q1, 87 percent projected higher bookings in Q2, and 87 percent projected higher bookings in Q3, with more than half of respondents expecting significantly higher bookings in Q3.
Upward Trends in Chinese Spending in the U.S. The US Department of Commerce just released the official 2012 international visitor spending data. China was the 6th-largest spending nationality in the U.S. in 2012, spending $9.2 billion — compared to just $7.7 billion in 2011 – making it the fastest growing market in 2012.
Luxury Sales Have Recovered to May 2012 levels. Year-on-year comparisons from industry insiders indicate that Chinese tourism numbers in the U.S. have recovered from a slower-than-normal April, and luxury spending is on par with May 2012. Our sources indicate that while average spending per customer is slightly down from last year, increases in tourism volume have made up for the lower average spend.
Graduation Spurs Travel and Spending. Proud Chinese parents are visiting their kids as they graduate from U.S. colleges during May, and treating them to shopping sprees in the process. One such group I met, venturing from Boston to Washington, D.C. by car, planned sightseeing and entertainment stops along the way, but also almost three full days of shopping during the week. They were also adjusting their itinerary along the way, reacting to their perceptions and seeking advice on various destinations.
What does this mean for destinations, attractions, retailers, and other businesses in the U.S.?
Dramatic increases in tourism volume. Although May is just the warm-up to the peak travel months starting in July, early indications are that we will continue to see dramatic increases in the volume of travelers to the U.S. this year, as well as continued growth in overall spending by Chinese visitors.
Expect continued “partial-emigration” by affluent Chinese citizens to the United States. A recent Bain & Co. report pointed out that the proportion of wealthy Chinese with overseas investments has doubled to 33 percent since 2011. Among the ultra-high-net-worth Chinese – those with at least 100 million yuan of investable assets – 51 percent said they had money invested overseas. And 60 percent of those who’ve already put money in offshore accounts intend to add more to their overseas portfolios.
Watch for Chinese tourism outside the traditional locations. Florida, for example, saw 230,000 Chinese visitors in 2012, up 51 percent from 2011; total expenditure was $117.2 million, up 65 percent from the same period a year ago.
We will continue to monitor these developing patterns for signs of weakness, but the Chinese tourism winds appear to be returning to their seasonal monsoon patterns in America.
And what is the prognosis for Beijing’s current crackdown on extravagance and hedonism by Chinese bureaucrats? Only Xi Jinping knows the answer. Whenever the restrictions lift – as they inevitably will, eventually – grab onto something solid and enjoy the wild ride.