Large groups of Chinese visitors have become a pillar of the global tourism industry. Coronavirus has not only brought an abrupt halt to this enormous source of income for major cities and sights across the globe, it is having a massive knock-on effect for luxury goods brands, which have come to rely significantly – and as some argue, over-rely – on Chinese consumer spending to fuel their bottom lines. For any tourist, buying souvenirs is a key part of the holiday experience. Travelers might snap up things like keyrings or refrigerator magnets, a T-shirt emblazoned with the slogan “I <3 NY” or a Russian matryoshka doll. However, instead of accessible trinkets, a significant number of Chinese tourists prefer to spend large sums on luxury items – such as designer clothes and accessories – when they travel overseas.
Roughly one-third of global spending on luxury goods was credited to Chinese consumers in 2018. Consultants at Bain predict that this number will rise to 50 percent by 2025. Before the coronavirus pandemic, nearly all of this $110 billion worth of spending (92 percent) was done outside the Chinese mainland, as Chinese consumers sought to avoid the steep import tariffs and value added taxes passed onto them if they were to buy Western luxury goods at home. (Prior to recent value-added tax cuts in China, Western products sold on the mainland could cost as much as 20 percent more than the exact same products sold in Europe, prompting many Chinese consumers to either shop for high-end products while traveling outside of the country or seek the assistance of daigous).
What is more, most of this overseas shopping is done by women between the ages of 19 and 29, according to a 2018 survey of over 750 million Chinese people. From our interviews with many of these women, it seems clear that as the Chinese economy recovers from coronavirus they will return to spending. Where they are able to travel and spend will have a big impact on economic recoveries from the pandemic.
The awakened generation
In China, demographic cohorts are defined by decades. Rather than millennials or generation Z, in China it is the post-90s generation (those born in the 1990s) that have become the core driver of growth for many industries, including luxury, leisure and travel retail. China’s post-90s generation are the direct beneficiaries of the country’s economic reform that began in the 1980s, which opened up the Chinese market to the rest of the world and spurred enormous economic growth through the 1990s to today. Girls, in particular, benefited from growing up at a time when China was more connected with the rest of the world and experienced significant cultural changes, including a decline in the historic preference for sons. The one-child policy played a part in this, too.
Compared with previous generations, which tend to be more family-centered and self-effacing, post-90s Chinese women are self-confident, independent and well-educated. They are also keen to express themselves through their consumption habits. This was evident in the conversations we had with high-spending young women. For them, buying luxury goods was a key part of their identity and self-expression. When traveling, it was one of the most important parts of their holiday, if not the actual purpose for their trip.
Around the world, people buy and display luxury goods – from fancy cars to expensive watches and handbags – as status symbols. This is especially the case for the post-90s Chinese woman who seeks to distinguish herself from others in various ways. 30-year old Vivian,* who has a master’s degree and works in finance, told us: “Buying luxury branded products is very personal. It’s my handbag. I do not want to look like everyone else.”
More than merely a way to avoid formerly steep VAT taxes, traveling further afield to Europe enables Chinese consumers to buy luxury goods that distinguish themselves from their peers, as different, regional designs are available than those offered up by the same brands in China. In addition the premium shopping experience, the people we spoke to repeatedly talked about the importance of having unique items. Ava, a 23-year-old student, revealed, “Those special designs somehow are much more beautiful than those basic items that are available everywhere [in China]. They also reflect my lifestyle as a well-traveled person. When I carry them around, people know I am special.”
We also found that for the post-90s Chinese woman who travels abroad, buying designer items in the country where they originated from was seen as part of the authentic experience. As Emma, who is 23 and works in fashion, put it: “Buying handbags in Paris makes me feel like a French lady. It’s a fun and authentic experience. It is a very different experience to purchasing them in Shenzhen.”
The coronavirus pandemic has not reduced the luxury appetite among China’s wealthy post-90s generation to travel and spend. A survey from April this year found that almost 60 percent of this group who had delayed their purchase plans would return to spending once the outbreak was over in China. And a number of luxury businesses reported a big rise in spending following the easing of lockdown restrictions in China, including jewelry brand Tiffany and fashion house Burberry.
While overseas travel restrictions will significantly reduce the outbound tourist market for the time being, many brands will be hoping for a similar bout of so-called “revenge spending,” as people make up for the time spent cooped up in lockdown.
Having been the first to be hit by coronavirus, China is the first major economy to show a recovery. And as the world’s largest (and still growing) source of travelers and luxury shoppers, China will be the engine of the post-pandemic recovery for both these sectors. Both should be aware of what motivates this younger generation to spend in order to tap into it.
* Names have been changed.
Xiaoqing Chen is a Lecturer in Management at the University of Aberdeen.
Carol Zhang is an Assistant Professor in Tourism Marketing and Management at the University of Nottingham. (This article was initially published by The Conversation).