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China’s Travel Retail Sees Transformation

China's consumers are some of the world's top-tier spenders in terms of travel retail, and the market's dynamics are continuing to evolve at a rapid pace.

BEIJING — In just a single generation, China’s consumers have become part of the world’s top-tier spenders in terms of travel retail and the market’s dynamics are continuing to evolve at a rapid pace, according to participants at a Tax-Free World Association (TFWA) conference here this week.

Andrew Wu, LVMH Moët Hennessy Louis Vuitton group president for Greater China, discussed China’s astonishing transformation from poor country to a nation filled with new wealth in just a few decades. With that wealth has followed a strong surge in consumer demand, thanks in part to economic reforms, and travel shopping has seen a major boost.
 
“Everybody in China, with no exception, is nouveau riche,” said Wu. “Nouveau riche is not a negative term. It explains a lot about China.”

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Wu said material possessions are “critically important for most Chinese people. China is moving rapidly from rags to riches to what I would call quality of life.”
 
He said retailers looking for customers in China must be mindful of the speed of change here and the ease by which Chinese consumers are able to adapt to new trends and tastes.
 
Consumer spending in China has quadrupled in the past 10 years, and the country is quickly becoming urbanized, with more than half the population now living in cities. That’s compared with an urban population of less than 10 percent just 40 years ago.
 
Youth is also a critical factor for companies to consider when looking at China’s market, said Wu, noting that 43 percent of the population was born after 1980. Among his staggering statistics, Wu also pointed out that overseas travel and study has exploded in the past decade. During the two decades from 1978-97, 288,000 Chinese students had studied in other countries. Contrast that with the 410,000 who studied overseas just last year alone.
 
“That’s a generation who have never known anything but economic growth. That’s who we have to deal with,” said Wu. “China is now in a continuous tidal wave of youth.”
 
Wu and several other speakers also warned their audience to remember that China is not a single entity or unified consumer market. Rather, the experts said, it is more useful to look at China through the same lens of Europe-unifying characteristics, but vast regional, ethnic and economic differences fragment the country’s consumer markets.
 
“Don’t treat China as a single entity,” cautioned Andrew Stockwell, vice president for Asia Pacific at Forrester Research.
 
Stockwell joined a panel that explored how Chinese consumers use the internet and social media, and what that means for brands and retailers.
 
Viveca Chan, chief executive of the WE Marketing Group, a Chinese branding consultancy, said that Chinese consumers now account for 25 percent of global luxury goods purchases. That means Chinese travelers have buying power and are willing to, and frequently plan to, spend on high-end items while on the road.
 
At the same time, social media offers a huge opportunity for companies looking to reach those consumers. In a survey her firm did, Chan said 58 percent of Chinese consumers research online about companies before making serious purchases. Consumers look to social media for advice, as knowledge is lacking in older generations who weren’t so cash-rich and a generation of only children. So shoppers turn to Weibo and other social media services before buying.
 
Chan said airport retailers should offer on-site, online promotions to shoppers to lure them in, and then personalize the experience. China’s high-end consumers are also younger; the average Chinese millionaire is just 39, compared with the 64-year-old average American millionaire.
 
These young, savvy rich also travel and want to spend, but often, they prefer to do so at downtown stores. China’s airports have left its consumers with poor impressions of price and variety in airport shopping.
 
“One thing we really need to do is entice Chinese travellers to choose to shop and spend in the airport,” said Chan.