WWD.com/business-news/designer-luxury/the-chinese-rich-hit-the-stores-3578793/
government-trade
government-trade

On Tour in the U.S. With China’s New Rich

Meet the luxury world’s next deep-pocketed consumer.

View Slideshow

Meet the luxury world’s new deep-pocketed consumer.

Journey down Fifth Avenue, stroll along the Champs-Elysées or wander down Via Montenapoleone, and chances are you’ll encounter at least a few Chinese tourists laden with shopping bags. This year, more than 57 million Chinese are expected to travel abroad, an increase of 3 million from 2010, according to a report released from the China Tourism Academy earlier this year. The report estimates the travelers will spend $55 billion on international travel.

The Shanghai-based China Market Research firm estimates that Chinese tourists spent $54 billion outside the Mainland in 2010, and tourism spending abroad is growing at about 12 to 14 percent a year. Chinese tourists as a group actually spend about $6 billion more overseas than they do domestically, due to the large number of trips to Hong Kong —and increasingly Europe —- to buy big-ticket luxury brand items like bags, shoes, clothes, watches and jewelry.

Regional destinations like Singapore, Macau, Hong Kong and Taiwan still remain at the top in terms of outbound tourism for Chinese. Although Europe and America are growing in popularity, it is still difficult for China’s travelers to get visas, particularly to the U.S.

Japan and South Korea are more popular destinations for Chinese tourists than the U.S. or Europe, but in the wake of the earthquake, tsunami and subsequent nuclear crisis in Japan, thousands of Mainland tourists have canceled trips to Tokyo and other parts of the country. Yet there is little indication these tourists have, so far, switched travel plans to America or even Europe, according to Fritz Demopoulos, founder of Qunar.com, a travel search engine in China.

“Tokyo is not really in the same bucket as London or New York or San Francisco or Los Angeles,” Demopoulos said. “Instead of going to Tokyo this year, they will go to Seoul or Kuala Lumpur or back to Singapore.”

Stories are rife about rich Chinese traveling overseas and spending outrageous amounts of money in luxury stores stretching from London to Los Angeles. But there are relatively few in-depth details about what, exactly, China’s rich, particularly those from second- and third-tier cities, are actually buying.

WWD gleaned some rare insight into these consumers and their buying habits when it accompanied a group of 140 well-heeled Chinese consumers on a recent trip to the United States, with stops in New York, Boston, Las Vegas and Los Angeles. The group of newly rich — some were multimillionaires and even billionaires — came from across China. For most, it was their first time leaving their home country.

Yan Jiehe, a construction tycoon considered one of China’s wealthiest men, organized the trip. Two years ago, Yan founded an exclusive CEO club aimed at helping small enterprises pool their resources to secure investment or government contracts for construction projects. Those who went on the trip to America were largely members of the club or family members of members of the club. Many never graduated from college.

During their 12-day tour, the group met with Bill Clinton in New York and Larry Summers at Harvard, gambled in Las Vegas and toured Universal Studios in Hollywood. When they were not sightseeing or eating at Chinese restaurants in Chinatowns across the U.S., they shopped — a lot.

“To spend money,” Rob Guo, a 31-year-old who works for Yan’s CEO club, said. “That is their number-one task.”

The purchasing preferences of the group were a mix of the expected and the unexpected, and what they ultimately ended up buying served as a sort of litmus test for which foreign brands are effectively marketing to Chinese back on the Mainland.

All had a fixation with Louis Vuitton. The men sought out Giorgio Armani and Ermenegildo Zegna; women wanted Chanel, Chloé and Prada. Most were unfamiliar with Salvatore Ferragamo, Celine and Balenciaga. They bought suitcases to haul as much as possible back home. Distrustful of credit cards, most paid for their goods with stacks of cash.

They also revealed a keen desire for health-related products and stocked up on bottles and bottles of vitamins, which they consider more reliable than the ones they find back home.

Most were reluctant to talk on the record about just how much money they spent, as publicity about ostentatious shopping can sometimes have negative consequences back home. In 2006, a Chinese court ordered Yan, the construction tycoon, to “avoid extravagant spending and not use luxury cars” after his company defaulted on loans, according to the state-run China Daily newspaper. And, in a curious move, the government in Beijing last month banned outdoor advertising using terms that celebrate opulence and high living.

Nevertheless, the tourists’ consumption of luxury was nothing short of conspicuous, and it started well before they landed on U.S. soil. In duty free shops in Beijing Capital International Airport, the women in the group cleared out entire shelves of expensive cosmetic products, including those from La Prairie, La Mer and Lancôme, the preferred beauty line for most of the women.

In Manhattan, most of the travelers dropped tens of thousands of dollars in a matter of hours on Fifth Avenue, which was only a few minutes walk from the Crowne Plaza hotel in Times Square where they stayed.

Louis Vuitton’s flagship on Fifth Avenue was one of the biggest draws, especially among the women, who asked to see the latest designs “one by one,” according to Guo, who helped translate. Zegna, Prada and Gucci were also popular, as was the Apple Store, where one shopper purchased four computers.

“They were not very familiar with Ferragamo,” Paul Xia, a guide with Lukintl, a Beijing-based tour company that has organized trips for thousands of Chinese to America since it was founded in 1996, who went on the Fifth Avenue shopping excursion, said. “They were not familiar with Balenciaga. Celine they did not know, and Tod’s, most of them did not know.”

According to Xia, Chinese tourists come to the States with thousands of dollars in cash. Few carry foreign credit cards because “the Chinese don’t trust each other, so they don’t trust credit cards,” Xia said. And where they choose to spend their money largely depends on where tour companies decide to take them, whether they can find a way to reach retailers by themselves and whether there is anyone around who can translate or speak Chinese. In most cases, there is not.

“Local tour guides introduce the shops, so they go there,” Roger Wang, also with Lukintl, said. “They don’t know where to buy, but they will buy whatever they find.”

In Boston, the second stop, the group didn’t go shopping. In Las Vegas, they shopped at Caesar’s Palace and once again hit up Vuitton. Yan, the tycoon who organized the trip, went to the Armani store and ordered “hundreds” of suits to gift his business associates back in China, according to his assistant.

The main attraction, however, was the outlet malls.

Tour buses picked the group up from the Paris Las Vegas hotel and drove them for a two-hour discount power shopping trip to the Las Vegas Premium Outlets, where Zhan Hongbing — a businessman who did not finish junior high school yet has managed to make millions selling kiwis and developing real estate in Chongqing, a metropolis in southwestern China — was utterly lost.

Zhan did not recognize Ferragamo and was completely unfamiliar with Polo Ralph Lauren and almost all the other brands, either because he did not know their English names or he had never heard of them. Finally, he settled on the Burberry outlet, where sales staff said they were looking to hire someone who speaks Mandarin because of the high number of Chinese tourists who come through.

Outside, an ATM accepted China UnionPay, the most widely used bank card in China.

Zhan purchased two Burberry suits, one black and one beige, at a deeply discounted price of around $200 apiece, as well as five signature Burberry scarves and more than half a dozen polo shirts.

The Coach outlet had the most cachet. Zhan joined the others there where he, and everyone else, bought four or five handbags and four or five wallets at a time. Bags covered with the classic Coach logo were the most popular. One woman went to Dooney & Bourke. Some made purchases at Vans, Skechers, Hugo Boss and Calvin Klein. Zhan stopped in Wilsons Leather Outlet, where he bagged a black leather jacket.

“I don’t remember the shops,” he said in an interview after the excursion. “I don’t know English. I don’t remember what brands I bought.”

Many were looking specifically for new luggage and stopped last at Samsonite, where Zhan spent more than $1,500 on suitcases and briefcases, which he opened up outside on the sidewalk and filled with his new wares. Of the 140 people on the trip, at least 80 percent bought luggage.

“There are no fake products in America,” Zhan, who spent $100,000 on the trip in cash and on his wife’s credit card, said. “That is why I prefer to buy these things there.”

Zhou Hongtao, a 35-year-old coal mine owner from the northern Henan Province, did not find much to buy at the outlets or really anywhere else. Though he spoke only Chinese, Zhou knew three words in English: “Made in China.” In the Armani Exchange and Polo outlets, he inspected products to see where they were made and ultimately found nothing to buy. Finally he settled on a pair of black and red New Balance sneakers from Rack Room Shoes and four Lancôme perfume gift sets from a cosmetic outlet.

After stopping for lunch at a Chinese restaurant in the middle of the desert, the three-bus cavalcade went to the Tanger outlet mall before making its way to Los Angeles.

While L.A. was widely perceived to be cheaper for luxury products compared to New York, the least amount of luxury shopping was done there. The tour stayed at a golf resort in the City of Industry suburb and did not make it to Beverly Hills or any other high-end retail epicenter in the area. Tour guides said the stores in Beverly Hills are less accommodating to Chinese tourists.

Instead, the group tapped into a network of shopping run mostly by immigrants from China and Hong Kong, including jewelry stores selling watches by Rolex, Tag Heuer and Patek Philippe, the most sought-after brand among the group.

One out of every 10 on the tour bought at least one watch on the trip. Some purchased two or more, with price tags between $40,000 and $50,000, according to Xia, the tour guide. Du Shi Dong, a 41-year-old property developer from Tangshan, a city in Hebei Province, said he planned on trying to purchase a Patek Philippe in the San Francisco airport before taking off for Beijing because he did not have time to buy one elsewhere.

“The Chinese think watches are the mark of a successful person,” Xia said. “They don’t have a lot of different suits, so they differentiate themselves with a watch, so they want to have a good one.”

They also want to have good razors. At a Fry’s Home Electronics store, the men made a beeline for the electric razor aisle, scooping up several Philips Norelcos at a time, choosing the brand because its products are made in Europe and not in China.

“They [the Chinese] will come in and clean out the entire shelf [of razors],” said an employee in the store.

Wang Xue Bo, 40, who runs a loan company in Yantai, a city in the northern province of Shandong, made his way to a store in a strip mall called Winfeik International Inc., where he bought dozens of bottles of vitamins and some herbal Viagra knockoff.

Owned by Peter Gao, a Chinese immigrant, Winfeik is a virtual one-stop shop for Mainland tourists, carrying almost every product on their shopping lists: Samsonite suitcases, Lancôme cosmetics and other perfumes, Norelco razors, designer sunglasses, pricy watches, cigarette lighters, American Mint collectible coins and Ed Hardy trucker hats.

“The health food is very important in China,” said Gao, who explained that many Chinese think vitamins sold on the Mainland “will kill them.”

On a table, Gao kept catalogues showcasing the latest designs from Hermès, Louis Vuitton and other luxury labels. Tour guides, Gao said, come in with their Chinese clients, who preselect the items so they know what they want to buy when they go to the actual stores and to ease language barriers.

By now, it is the last night in America and time is ticking until the group can buy no more. The Chinese travelers who came clad in clothing from domestic brands with names like Septwolves and Minglang now are layered up in, at times, somewhat mismatched luxury products from head to toe. They stop, for the second time, at the Shops at Montebello, a mall in the San Gabriel Valley, which is eight miles from downtown L.A. Again, they go to GNC for vitamins. One couple stops at Zales to purchase jewelry. Many visit Macy’s. Most return to the Coach store, where they load up on more handbags and wallets.

A store manager remarks that the Chinese are their “best customers. When they come in, we know we will make our day,” she said.

Then she stopped and added, “But I don’t know if they realize this — but all of our stuff is made in China.”

 

 

View Slideshow