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Jun
2015

To double dip or suffer a double dip in sales over the holidays? …that is the question.

AI WEI WEI, Guardian Christmas screen saver artwork<br />
copyright: Ai Wei Wei

Perhaps to the international observer, the near coincidence of the Christmas holidays, and Chinese New Year must be a gift from the gods for luxury brands, as it represents an opportunity to sell to the Chinese at least once, if not twice over the winter months. The logic is sound, and China and the Chinese are certainly far more accepting of Christmas than they have been in the past, but as with many things in life, perception and reality can often be poles apart.

As observers and specialists in Chinese luxury consumption, we had a pretty good idea if, where and how money would be spent on luxury over the past two months, and based on our research and observations, we were right. Was it all doom and gloom, and were the wallets and purses closed for the winter? The simple answer is no, but there is a need to understand both the economic and cultural influences on the spending patterns and habits of the Chinese luxury consumer over the holiday period that has just past.

Christmas verses Chinese New Year culture

It is important for any person or organisation wanting to sell to and interact with Chinese people over the Christmas and Chinese New Year period to understand the culture and social practices of both holidays to the Chinese consumer. Let us firstly make an obvious statement about Christmas, which is that unlike Chinese New year which is based on a lunar calendar and moves each year, Christmas is a fixed date that is a religious festival for Christians.

However, the two holidays have a connection through family gatherings and reunions, although many in the west may in these times, not see the family link to Christmas as strongly as they might have in the past. During Chinese New Year, family and close friends are completely central to the thinking and activities of the holiday. It would be fare to say that at Chinese New year, Chinese people treat returning to their hometowns and meeting up with family members with a religious fervour. One only has to look at the huge crowds at train stations, airports and long delays on the main roads to see the herding affect.

Although this is a generalisation, Christmas day in the west, and possibly the day before and after it are those during which families gather, often in small groups, sharing their time between disparate siblings, aunts, uncles and grandparents.

In China, the entire new year holiday of seven days is likely to be back-to-back lunches or dinners, some of which may involve tens if not many tens of family members, friends and close business associates. The focus for the Chinese is family, showing respect to and for the family members and close friends, and carrying out a social duty. Yes, like Christmas in the Christian world, there is much food, drink and talking, but this is a bi-product of the getting together, and not the reason to get together.

A time for gifting

Both holidays are associated with gifts. During Chinese New Year for most, its about giving or receiving a Hong Bao (red envelope) in which is money, often quite a great deal of money. A university graduate will receive a red envelope from their parents and other close family members, but they to will be expected to do their duty and give a red envelope to their younger nephews and nieces, their grandparents and perhaps other family members. For some, gifting involves giving actual presents to others. Expensive natural medicines and herbal treatments are popular for a healthy year ahead; they are symbolic and respectful at the same time.

Gifting to close personal friends or business associates has always been a cultural practice, and clearly the crackdown on gifting to and by government officials has had a significant impact on the watch and leather goods sectors in particular. However, gifting as a practice in China will not go away. Lavish Christmas and new years dinners were also commonplace two years ago, but even these have been reduced in number or forbidden in government circles since late 2012. But these new regulations do not directly impact private business owners and individuals who still invite important business associates to join family dinners as a sign of respect and as a means to increase the strength of connections.

Christmas on the other hand has quite different connotations to the younger Chinese people. It is still about giving and receiving gifts, between couples and close friends, but it has the western social element of enjoyment and relaxation, and not the Chinese New Year element of duty. Younger individuals will use Christmas as a time to reward themselves for a year of hard work, with items that make them feel good, not necessarily very expensive things, but the whole Christmas holiday and sale period engages them. They like the romance, and they love a bargain.

Travelling outside of China during the Christmas holiday has become popular with the younger middle class and affluent people, and older wealthy individuals. For younger Chinese, travelling at Christmas is a treat and a way to immerse themselves in the Christmas culture in a location where the festival is traditionally practiced. It is also a time to relax away from the pace of life in China, and before they return to perform their family duty during the Chinese New Year holidays.

In October 2013, the government introduced new regulations forbidding travel agencies to take sales commission against purchases made by travel groups; the result was an increase in travel costs. This increase has not perturbed young and middle aged people from traveling at Christmas, but it has meant that their overall budget must be better used, if flights and hotel packages increase, there is less money to be spent on purchases overseas. The sale period in Europe and the US just before and over the holiday period therefore has become very attractive. Chinese travellers can still buy the items they want for themselves due to competitive prices in the sales, and enjoy the whole festive atmosphere in London, Paris or New York.

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Consumer activity and spending: East verses West.

Christmas 2013 in China

Beijing

Over the Christmas period there were a high volume of people visiting luxury stores such as LV, Dior, Prada etc. in Beijing, and some stores even set up a queuing area outside the building. However appearances are deceptive and according to sales staff, most of the visitors were showrooming and the actual purchase rate was down when compared to last year.

Shanghai

A similar situation befell Shanghai where it appears that this year’s ‘Christmas-New Year discount’ didn’t attract much attention. For example on Sunday December 22nd, additional discount activities were running at the Qingpu Outlet, yet consumer activity was quite calm. ‘It used to be a disaster on the way to the Outlet, and typically takes nearly 40 minutes to park the car. But today, there are still empty parking places available.’ According to Ms. Li, a 30 year old consumer ‘I feel this year’s shopping season is less busy than the previous ones and many stores are deserted.’

Hong Kong

Based on the Hong Kong Immigration Bureau statistics, a total number of 401,000 tourists entered Hong Kong on Christmas Eve to celebrate Christmas, most of them were from Mainland China. However, this year their behaviour was different from that of previous years where they would rush to purchase luxury watches or bags; Mainland Chinese consumers appear to be more mature. People still queue up outside luxury stores in Times Square or Harbour City, but rarely make a purchase. By comparison, electronic products, clothing, cosmetics, pharmaceuticals, etc. have become the focus for these consumers.

According to Dong Yaozhong, Director of the Travel Industry Council of Hong Kong, he thinks the change is obvious ‘Unlike their previous high-end brand-oriented attitude, mainland tourists are now buying more practical items. Also it’s far more convenient to travel to Europe now, and luxury goods are relatively cheaper there than in Hong Kong, so some consumers may switch to buy there which maybe another reason for the change.’

Mr. Li had bought a mid-end bag at a discounted price about $HK 3,000. ‘Although living standards have improved, to buy a bag for over for 10 thousand RMB is unnecessary, practicality and fancy appearance is my goal. I did buy a package of skin care products and cosmetics which are necessities of my daily life and much cheaper than in Beijing.’

Christmas 2013 outside of China

Christmas was a busy time for Chinese travellers. Milan benefited from increased Chinese visitors, as well as those from Russia and Japan. Russians accounting for 30% of consumption and Chinese 28% over the holiday period.

According to data from the travel company Ctrip, outbound shopping tourism was still popular at the end of 2013, and booking numbers increased significantly compared to previous years. The Independent traveller (those not in a tour group) accounted for 70% of all tourists to the most popular travel destinations. Spending 4 to 5 days away was the most popular holiday period especially during Christmas, New Year and Spring Festival.

Most popular overseas shopping destinations for Chinese consumers were: Hong Kong, Seoul, Singapore, Bangkok, Tokyo, Paris, London and Dubai. Hong Kong topped the list, Dubai and Hawaii are new this year list.

For the New Year’s holiday, hot tourist destinations were Hong Kong, Seoul, Taipei, Tokyo, Singapore, Bangkok, Phuket, Osaka, Hawaii, and Kuala Lumpur.

According to the General Manager of Atout France, the French tourist development agency, “In Paris, Chinese tourists spend six times more than French tourists. Foreign tourists generally spend 19% of their budget on shopping in Paris. From the proportion angle, Chinese are the kings of shopping. They spend 1,500 Euros in Paris on average and 34% (510 Euros) of which is for shopping, much higher than Japanese (29%), Russian (27%), South Korean (24%) and consumers from the Middle-East (23%).”

The offshore tax-free shop sales up in 2013

Chinese are still eager to buy luxury goods domestically if the products here are seen to be good value for money.

According to Haikou Customs on the island of Hainan, 2 offshore duty-free stores sold 4,470,000 items to 1.1 million passengers in 2013, at a value of approximately 3.3 billion RMB.

*Tax-free shopping limit is 8,000 RMB per person

CNY 2014 in China

During the Spring Festival holiday this year, the Chinese overseas’ purchase, including those in Hong Kong and Macau on luxury goods decreased by 18.8% compared to the same period last year, falling to US$ 6.9 Billion according to the statistics from China Council for the Promotion of International Trade (CCPIT) and World Luxury Association (WLA). However, the sales in Mainland China were much worse. Only US$ 350 Million worth of luxury goods were sold during the 7 days holiday in Beijing, Shanghai and other big cities, a decrease of 57.8%. The declining sales figures support the observations given earlier in this piece that the focus for most individuals and families over CNY was their family, and not spending large sums of money on luxury items.

During the 2014 Spring Festival, consumers still have money, and stores have stock, however, in a change from past practices many of the top brands, often considered arrogant by Chinese consumers, began to discount to attract customers.

In the Shin Kong Place, a high-end shopping mall in Beijing, Tod’s, Burberry, Dior and other luxury brands promoted discounts of 30% to 50% during the Festival. In the past, products on discount were not clearly highlighted to customers, and would often be a small selection of less popular items. This year, there were many classic products on offer too. Gucci, Ferragamo, Yves Saint Laurent and other brands also offered 30% discounts, sales staff claiming that there had been no such large scale price reductions ever before.

Discounting was not only confined to the capital, Burberry, Armani, Gucci, Bally, Versace, Prada, Miumiu, Coach and Valentino all had 50% to 20% off activities in other mega cities such as Shanghai and Guangzhou.

To retain their status, luxury brands have always taken a low-key approach to discounting in China and will never display promotional cards or use other highly visible promotional signage as lesser brands would do. Only by looking at the price tag or asking the staff could consumers know that the brand is actually discounting.

Spending by Chinese overseas during CNY

‘Regular travelling Chinese still have the desire to buy, I don’t feel any decline in that’ said Wang Xiqi, a tour leader who had just comeback from Europe during the CNY.

‘This year, consumers are more willing to spend their budget on cosmetics, perfume, clothing and jewellery.’

As we know, compared to leather goods, products such as cosmetics or perfume are relatively low cost and are affordable to the middle class on restricted budgets. The increase in these categories indicates that the female is the main force when it comes to overseas purchases during the 2014 CNY, and male oriented consumption of products such as leather items, high-end wine and luxury watches significantly decreased as a result of the decline in government travelling.

Less shopping, more touring

As the tourism product prices for the Chinese have decreased year on year, the proportion of middle-class travelling overseas have also increased.

When compared to booking on a shopping tour during the Christmas discounting season overseas, those travelling during CNY prefer to sightsee or take a relaxing tour because CNY is family oriented, a time to be with loved-ones, and family tours have proved popular this year. The proportion of people travelling at their own expense has also increased. Compared to business travellers, individual travellers have a much lower budget, so the Chinese who can travel and buy expensive products such as luxury bags or high-end watches is declining.

Overall those tourists travelling overseas during the Spring Festival appear to have been more rational, and there is no evidence of Chinese panic buying luxury goods as has been reported in previous years.

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International programmes to attract Chinese travellers

Its not just luxury brands themselves that are doing their best to woo Chinese consumers, at government level and in luxury department stores there has been more activity recently in this area.

Iconic retailer Harrods launched a ‘Christmas Treasure Hunt’

With such a large influx of Chinese consumers arriving in the UK’s capital, Harrods is engaged with its Chinese visitors using a new online-to-offline (O2O) Sina Weibo campaign for Christmas.

The ‘Harrods Christmas Treasure Hunt’ campaign was kicked off on Weibo by images of Harrods ‘Green Men’ hiding three Christmas gifts around the store each with a tag printed with the Sina Weibo logo. In order to win the three items, Weibo followers must find the gifts and upload an image of themselves next to each of the three. As we know, lucky draws and free prizes are a real draw for the Chinese, and the practical experience of some followed by many on the Weibo site surely did the brand no harm.

The US government issued a year of the horse ‘lucky’ 1$ bill

In early December the US Treasury department unveiled its new year of the horse ‘lucky 1$ note’, the next in a series based on the lunar calendar. With a face value of $1, each note has a serial number starting with 888, and 88,888 notes will be printed. However, it will have cost the purchaser $4.98 to buy the note, but given that the same notes are currently up on e-bay for almost $10, then perhaps it is not such a bad deal.

The UK government announced its China Welcome initiative

In December the British Secretary of State for Culture, Media and Sport, Maria Miller, announced its initiative to make Britain the most welcoming destination in Europe for Chinese visitors. This does seem a little to late and not well coordinated with the department issuing visa’s, but at least the government recognises its past failures.

Launching in spring 2014 the programme is supported by many British brands from retailers to those in the travel industry, and aims to introduce far more mandarin speaking guides, websites and visitor information. Having missed the Christmas opportunity to have all these things in place, maybe the October holiday is the next real chance to demonstrate a difference. We wait to see.

 


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