Chinese Lessons: The Luxury Consumer

Newly affluent Chinese tourists love to travel and are armed with cash. What makes them tick?

Newly affluent Chinese tourists love to travel and are armed with cash.
Appeared In
Special Issue
WWD Collections issue 11/14/2011

There is perhaps no other place on earth that offers more ideal conditions to study the behavior of Chinese consumers abroad than on an isolated island in the middle of the Indian Ocean.

This story first appeared in the November 14, 2011 issue of WWD.  Subscribe Today.

In the Maldives, a tropical paradise of around 1,000 tiny islands that hang like a necklace of pearls around the equator, the number of tourists from China has increased exponentially in recent years. In 2010, more than 118,000 Chinese people visited the country, a 109 percent increase from the year before, making China the number-one inbound market, according to the Maldivian tourism ministry.

The crystal-clear waters, coral reefs and powdery beaches that are pervasive in this island nation of around 350,000 are a far cry from the shopping meccas of Oxfordshire or the Champs-Elysées—destinations where droves of Chinese travel each year to spend millions of dollars on luxury goods. But as brands in virtually all corners of the world seek to understand the antics of tourists from China, the Maldives, in essence, are the perfect petri dish for observing their behavior. It’s vital to understand them, for, according to the Boston Consulting Group, China will have an outbound tourist market triple the size of Japan’s by 2020.

“They are eager to buy something, because when they come here, they carry a lot of money,” says Shi Hui Ling, a so-called “guest experience manager,” who was handpicked from a tourism school in Dubai by Six Senses, a resort on a tiny island in an atoll called Laamu, to provide special service to guests from her homeland. “Something unique, they want to buy this. They are looking for handmade [souvenirs], something very natural.”

In the resort’s gift shop, figurines carved out of coconut shells or wood are bestsellers among the Chinese guests, many of whom, according to Shi, come from Shanghai and Beijing, and increasingly smaller cities in provinces such as Sichuan and Guangdong or Hangzhou, a city outside of Shanghai. They are well traveled, having visited Hong Kong, Thailand, the Philippines and Vietnam, which means they are more discerning in terms of the services they expect and the activities they want to participate in.

And in terms of what they will not buy, there are three words they are on the lookout for: Made in China. “If they see those words, they will not buy that [product],” Shi says.

A number of the Chinese guests come to Six Senses specifically because Shi was recommended by previous travelers on online travel forums in China. The Internet, particularly sites where Netizens, as China’s 400 million Web users are called, are the top sources of information for would-be tourists on the mainland when researching trips, according to a study from the Nielsen Outbound Travel Monitor. Before the guests arrive, Shi prebooks a table for them at the resort’s exclusive restaurant. If guests request a special service and it is not available, Shi says she makes sure she finds something better to offer them in return, because “they won’t want to repeat something they could not have in the first place.”



Not fans of foreign food, the Chinese often pack their own instant noodles and make special requests for home-cooked cuisine at the resort’s restaurants. They have also done an abundant amount of research beforehand, coming prepared with everything from scuba gear to mosquito repellent.

Mainland tourists, she adds, rarely complain, and if they do, Shi never offers Chinese guests any free perks in return because “they will feel embarrassed.”

“They are sensitive,” Shi says. “We have to take better care of them.”

There can be lessons learned from the ways in which Shi services her clientele, especially since they form part of a small but growing group of experienced, affluent travelers from China—a group that the 2011 BCG tourism study estimates will number nearly 100 million by 2020 and will account for roughly one-third of all trips taken by the Chinese and more than 40 percent of the total monetary value of the Chinese domestic and outbound leisure markets.

Still today, predominantly from first-tier cities like Beijing and Shanghai, these tourists tend to travel in small groups and want to relax, seek out memorable experiences and take part in something different (i.e., a private barbecue on a beach or a dolphin cruise in the Maldives). According to the BCG study, “The window of opportunity is wide open for travel providers that can offer unique products and services for this segment.”

Shopping is at the top of their list in terms of activities, and they are well-educated on what they want to buy. The brands that do best among the Chinese are high-end, immediately identifiable and well known. For example, the Chinese love Louis Vuitton and Coach, two brands that are easy to recognize and popular all over the world.

“Our Chinese customers are very up-to-speed on luxury, fashion and the latest trends,” Bruno Pavlovsky, president of Chanel fashion, says. “The most sophisticated and high-end pieces are very sought after. [The Chinese consumer] likes customer service to be efficient and personalized. She does not need to be reassured about her purchase, because she is very well informed and has done her research before coming to the store. She knows exactly what she wants.”

“Our Chinese customers are buying more confidently into looks rather than individual pieces,” Jason Beckley, global marketing director at Alfred Dunhill, says. “They’re not impulse shoppers, and they’re discreet—they like a VIP or bespoke room, or even just to be offered tea or water when they are in the store.”

The challenge retailers could face when serving this emerging high-end group might be identifying exactly who they are and how to reach out to them while they are abroad, according to Christine Lu, founder of Affinity China, a private travel club that arranges trips for small groups of ultrarich Chinese. The company recently took a group of 20 wealthy Chinese for a vacation in the Hamptons, where they stayed in beachside mansions and sailed on Hinckley yachts.

“It is a very hard demographic to target, because it relies on being an insider,” says Lu, who is arranging a VIP shopping trip this winter for 88 Chinese (88 is a lucky number in China) in New York.

“There are so many different pockets of ceo clubs, private clubs, things like that are popping up. It is a difficult market to penetrate, because they are very discreet,” she says. “Anyone who has made money in the past 20 years has done so with a lot of good business connections or political connections or a combination of both. They are all trust networks.”

Lu recommends that retailers begin targeting this group in China, working with stores in other regions to connect with them when they travel overseas. “No one is connecting the dots,” she says. “Who is coordinating to make sure other stores are ready for them when they arrive? The Chinese are not a geography, but luxury brands are still looking at them in terms of geography.”

On the subject of geography, there are other shifts happening in the Chinese outbound travel segment, particularly regarding where mainland travelers are coming from. More Chinese are traveling overseas from smaller cities, places where growing middle classes are accumulating more wealth and do not face the financial pinch of rising housing prices and inflation felt by similar demographics in cities like Beijing and Shanghai, which, according to Vincent Liu, a partner at BCG in Hong Kong, will eventually impact the spending power of travelers from first-tier cities.


“Emotionally, it is starting to kick in,” Liu says. “If you talk to someone from Shanghai, they are much more stressed out than their counterparts in inland cities, where there is a lot of income growth and optimism about a bright future.”

Middle classes from smaller cities are not quite rich enough yet to engage in much overseas travel; tourists from the interior tend to be superrich, inexperienced overseas and eager to spend a lot of money.

“Many of them are richer than those from major cities,” says Roger Wang, head of Lukintl, a Beijing-based tour company that has taken thousands of Chinese to America since it was founded in 1996. “The tourists from the main cities are mostly from the middle class, while tourists from smaller cities are millionaires or government officials. Usually they have strong spending power.”

According to Wang, this demographic will spend more than $100,000 abroad, using credit cards or with money sent to them via wire transfer from friends. They seek out famous brands, but overall they are uneducated about which international fashion labels are which—mainly due to a lack of foreign brands present in their cities back home.

“I think Internet shopping will be very hot in coming years,” Wang observes. “People may choose the goods online and check when going abroad and finally buy. Because people here [in China] always doubt what is imported, I think overseas shops should have this business: reserve online and buy at the shop [abroad].”

“You see all of these successful brands in China. They are doing very well here, but they may not be doing very well among Chinese traveling abroad,” says Godwin Lam, managing director of Li & Fung’s Trinity Ltd. retail operation in China. “People ask why: It’s very important in China that you make the name easy to read by the Chinese. You have to be very, very easy to read.”

For example, Cerruti is known as 1881 on the mainland. Hugo Boss is known simply as Boss, because the Chinese can read Boss more easily. Kent & Curwen is known as the “Three Lion Brand” or “Three Crown Brand” among the Chinese, he says.


“It is a psychological thing,” he adds. “When the Chinese wear something of luxury, they want to show off. But paying [$3,000] for a suit that nobody remembers or knows [is pointless.] The Chinese are at a stage when they want to use expensive things to show off. That is why a lot of designers [that don’t have prominent logos] are out. I cannot think of any [fashion apparel brand] that the Chinese want that is not already here.”

“The people from Beijing or Shanghai, they know most of the brands, but in some other cities, they don’t have these brands, so the people from those cities are not very familiar with them,” Paul Xia, a guide with Lukintl, says.

For this burgeoning demographic, retailers would do well simply to have salespeople who speak Chinese; however, capitalizing on their spending power ultimately must begin back in China by creating more brand awareness beyond Shanghai and Beijing, which will have a payoff both on the mainland and abroad.

“We’ve been on the ground in China for the past 25 years, and today we have more than 50 stores in flagship locations as well as second-tier cities,” says Berndt Hauptkorn, ceo of Bally. “The level of sophistication of the Chinese customer has increased rapidly over the past few years.”