ASK any luxury retailer where their most valuable customers are from and most will say China. The post-2008 years have not been the easiest for luxury brands, but China's apparently unquenchable thirst for all things bling has made up for the slowing down of European consumption. By some estimates, half of the world’s luxury spending will come from Chinese wallets by next year. The Chinese taxman, however, is missing out on the splurging: around two-thirds of luxury products bought by Chinese (and often made in China) are purchased outside the country. Why do the Chinese spend so much on luxury goods abroad?
The Chinese only recently started making enough money to splurge. Now, with the middle classes expanding fast and the number of millionaires soaring (2.8m at the latest count), they have been catching up rapidly. In a country that is finely attuned to social-status signals, branded goods and sophisticated travel are high on many people's wishlists. Global Blue, a retail-tourism company, found that for 82% of Chinese travellers shopping was a crucial part of their travel plans. In Britain they spend nearly £1,700 ($2,800) per person per trip, three times the market average. Much of it is spent on shopping; Chinese tourists have no problem buying Prada by day but sleeping in two-star hotels by night.
The main reason why they buy abroad is price. Hefty import tariffs and consumption taxes, as well as higher pricing strategies, can increase prices in China to 50% more than a shopper would pay elsewhere. According to LVMH, a French luxury conglomerate, a Louis Vuitton handbag costs 30% more in Beijing than in Paris. A guarantee of authenticity is another reason why the Chinese prefer European or American stores over their own. Bragging is also part of the story: people want to show they have been abroad, which is why “Made in Italy” labels outrank “Made in China” ones, says Wan-Yu Cho, a Mandarin-speaker who works at Bicester Village, an out-of-town shopping area in southern England. Bicester’s Chinese customers account for 42% of its total tax-refunded sales; last year their spending grew by nearly half. Finally, because giving presents (another form of bragging) is often the reason why Chinese tourists buy luxury goods, a successful man (or increasingly woman—Bain, a consultancy, estimates that women now account for half of Chinese luxury spending, up from 10% in 1995) simply cannot return home without a sizeable excess-luggage bill.
The slowing Chinese economy and an official crackdown on corruption and lavish gifting has tempered the luxury market after years of double-digit growth. The time where $800 bottles of wine were imported by the plane-load is coming to an end. But whereas ostentatious displays of wealth may be less common at the top end of the market, the new Chinese middle classes still see luxury goods as a way to show they have made it. “Dior” and “Rolex” remain popular search terms on Chinese microblogging sites. What’s more, says Scott Malkin of Value Retail, the company which runs Bicester and eight similar shopping villages in Europe, the Chinese also shop abroad for the “experience” and the stories they can tell afterwards. (Bicester has red telephone-booths where people line up for pictures.) The Chinese shopping-spree looks set to continue.