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As travel resumes, Chinese luxury shoppers ask: Paris or Hainan?

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SHANGHAI, Jan 5 (Reuters) – The end of travel restrictions in China this month is expected to revive demand in the global luxury retail market, which has been starved of mainland visitors for three years, but many consumers now see more reason to make their high-end purchases local.

Share prices of global luxury brands surged last week after Beijing announced it would ease travel restrictions from January 8, allowing Chinese tourists to once again flock to global malls in Paris. in Tokyo.

However, analysts and luxury brands warn there is unlikely to be an immediate return to pre-pandemic levels of Chinese travelers with airlines yet to fully resume operations and local prices falling. Equally important, major luxury brands are now investing more in the shopping experience in China.

A customer from Shanghai, surnamed Mao, said she had visited boutiques around the world for years but now believed she was getting the best service in China.

“When I used to go to Paris, I couldn’t ask Parisian vendors to keep a bag for me, but now here we can,” she said.

Before the pandemic closed borders in early 2020, Chinese shoppers sourced 70% of their luxury goods from overseas.

Under pandemic travel restrictions, domestic luxury sales in China have soared, doubling to 471 billion yuan ($68.25 billion) from 2019 to 2021, according to Bain & Co. Even so, the share of Chinese consumers in the global market fell to 21% in 2021 from 25% in 2019.

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“It won’t come back to 70%,” said Jonathan Yan, director of the Roland Berger consultancy in Shanghai. “I’m sure there will always be some luxury spending in other countries, because it’s natural that people like to shop when we travel, but it’s going to be more of a 50-50.”

Many luxury companies such as LVMH’s Louis Vuitton (LVMH.PA) and Coach-parent Tapestry (TPR.N) have doubled their presence in China over the past three years, opening new flagship stores and hosting major fashion shows. fashion to reach consumers unable to go abroad.

This has helped local staff cultivate relationships with Chinese VIP customers, who previously preferred to shop overseas.

A study by Hong Kong-based consultancy Oliver Wyman showed that 70% of Chinese luxury consumers use sales associates to facilitate their purchases, while 40% communicate with sales staff at least once. per week.

Oliver Wyman’s Kenneth Chow says half of Chinese consumers who bought luxury in 2021 were doing so for the first time.

“It will be interesting to see how new luxury consumers perceive the difference between domestic and foreign luxury purchases,” he said.

ALTERNATIVES

Restrictions on international travel and local policies aimed at spurring spending have also led many consumers to travel to China’s tax-free island of Hainan as a luxury shopping destination.

In 2021, Hainan accounted for 13% of domestic luxury spending in China, up from 6% before the pandemic, and tax regulations are expected to continue to loosen. By 2025, luxury brands will be able to operate their own duty-free stores, rather than relying on partnerships with local players such as China Duty Free Group (601888.SS).

Hainan’s popularity is set to continue, Roland Berger’s Yan says, as only 13% of Chinese citizens have passports, making an inland duty-free destination extremely attractive.

Hainan, along with Beijing’s moves to lower import tariffs on luxury goods in 2018 and 2019, has consequently blunted some of the allure of overseas shopping for some more price-conscious shoppers. , with handbags now around 10-20% more expensive in China, up from 50-60% previously.

At 14,400 yuan ($2,090), Louis Vuitton’s medium-sized Neverfull bag is only 18% more expensive in Shanghai than in Paris, if travelers claim their 12% VAT refund.

Luca Solca, senior research analyst at Bernstein, said brands will continue to work to reduce cross-border price gaps, though efforts are still complicated by the currency’s depreciation against the dollar.

“It will take time for Chinese people to return to Europe, where prices are lower,” he said, predicting a widespread return to long-haul travel in 2024.

International travel searches and bookings since the announcement of the lifting of the quarantine have favored short-haul international destinations, with Hong Kong, South Korea and Japan topping travel agency searches.

For many, however, the wider supply of luxury goods abroad combined with the savings means shopping holidays are definitely back on the agenda – good news for Parisian retailers.

Lucy Lu, 31, who works in fashion in Shanghai, has already made her travel plans.

“The Bulgari ring my friend wants is 20% cheaper in Dubai and my other friend gave me a makeup list, some products are often out of stock in China so it’s easier to get them in the stranger.”

Reporting by Casey Hall; Editing by Sam Holmes

Our standards: The Thomson Reuters Trust Principles.

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