Duty free is the most important shopping channel for Chinese tourists, while buying patterns show that travellers from so-called tier-2 and lower cities are proving to be the biggest spenders.
These revealing insights come from a new report from think tank Fung Global Retail & Technology and consultancy China Luxury Advisors.
It says that duty free accounts for 29% of Chinese tourists’ retail spending, well ahead of the second-placed department store channel at 18%, and single-brand stores (15%) in third.
By market, South Korea still retains the biggest share of duty free retail spending at 31%, followed by Western Europe (France, Germany, Italy and UK) at 30% while the US had the lowest share at 19% (with outlet stores in front at 32%).
The report – based on the joint third annual survey of Chinese overseas tourists’ travel and spending, from the two organisations – also points to another fact: tourists from lower-tier cities earn less, but spend more than those from tier-1 cities.
In the case of average retail purchases, lower-tier visitors spend US$1,370 while tier-1 visitors spend US$1,204.
Speaking to The Moodie Davitt Report, Esme Pau, Analyst at Fung Global Retail & Technology, said: “While travellers from tier-1 cities and lower-tier cities both spend around US$1,000 on non-retail purchases, there is higher retail spending by those from lower-tier cities. We believe they are more likely to buy on behalf of friends and family, which might possibly drive up the figure.”
The buyer behaviour suggests that duty free and travel retailers need to focus more on the non-tier-1 market, not least because of their sheer population mass.
While there is no official definition of city tiers, Fung has counted the major PRC cities such as Beijing, Shanghai, Guangzhou and Shenzhen as tier-1 – their combined population is 65.7 million (2014 data).
A report by China Business Network, suggests there are 30 tier-2 cities and 15 ‘new tier-one’ cities, which if grouped together, have a combined population of 331.6 million.
Pau added: “A different approach might be needed when targeting travellers from lower-tier cities. Our survey data shows that they are more likely to be influenced by friends/relatives and travel websites when choosing retailers to shop at, but they are less influenced by discounts when comparing those from tier-1 cities. Having Chinese-speaking staff is also important.”
On duty free’s leading position among retail channels, Pau noted: “This is the first year that we looked into spending by different retail channels. We expect both duty free and department stores to maintain their shares, as their scale allows them to offer a one-stop shop location with services that appeal to Chinese tourists.”
The services which travellers regarded as most important, according to the survey, were on-site tax refunds, ability to pay by UnionPay, and free wifi connection.
In the past 12 months, more Chinese have travelled overseas compared to the prior year and they are continuing to drive retail spending at tourist destinations globally, the report says.
Chinese outbound tourists will account for an estimated US$315 billion in travel revenue in 2017, according to Fung’s estimates, making them the world’s biggest spenders on foreign travel.
“By 2021, we estimate that 192 million Chinese tourists will travel overseas, and that their total overseas spending will reach US$419 billion,” claims the study.