Attracting Chinese tourists can certainly pay off. Oct. 7 marked the end of China’s seven-day national holiday, Golden Week, a major travel period when Chinese tourists love to shop.
During Golden Week 2018, the number of Chinese tourists traveling overseas grew more than 8% year-over-year to reach nearly 7 million consumers who spent an average of $1055 per person while abroad. These results reflect increases in the number of tourists and total spending since last year, proving Chinese tourists’ desire for foreign goods.
China’s affluence continues to increase. As McKinsey & Company reports, 76% of China’s urban population will be considered middle class by 2022, suggesting Chinese consumers will have more disposable income for American and foreign product consumption.
Market opportunities for retail companies
During Golden Week, the most popular product categories among Chinese cross-border consumers are cosmetics, luxury apparel and accessories, baby formula and nutritional products. These categories remain popular all year among Chinese online shoppers of foreign goods.
Of note this year, Golden Week shoppers who live in China’s tier-two cities significantly increased their spending abroad. Shoppers from the cities of Fuzhou, Hangzhou and Wuhan increasing spending by 70%, 50% and 31%, respectively, compared to Golden Week 2017.
Consumers in these smaller cities appear to travel during Golden Week in part to shop for international products they cannot easily buy at home. In general, Chinese consumers seek greater variety and the prestige of owning foreign products, which they often perceive as being more trustworthy and higher quality than domestic offerings.
To reach Chinese shoppers even beyond Golden Week, more American and foreign companies now sell through cross-border e-commerce by shipping inventory stocked in their domestic markets or free trade zones directly to Chinese consumers. According to data from 100ec.cn, sales of cross-border e-commerce imports have grown more than four-fold since 2013 to reach $277 billion in 2017, showing this trend’s momentum.
Regulatory changes benefit US retailers
This year’s Golden Week shoppers appeared to shift their consumption away from the gray market. Chinese customs officials cracked down on daigou, the term for the gray market of individuals or organized groups who illegally smuggle foreign goods into China. To protect consumers and retail businesses from fraudulent products and daigou sellers, Chinese customs arrested up to 100 people on one flight alone, which returned to Shanghai during Golden Week. More opportunities may arise for international retailers and brands to enter China through more legitimate channels, including cross-border e-commerce.
In addition, the Chinese government continues to relax its restrictions and tariffs on certain product categories, such as cosmetics. The government is lowering taxes on high-end luxury cosmetics from 60% to 50%, and is considering eliminating animal testing required to register and sell cosmetics products in China, according to Cosmetics Design Asia and Retail in Asia. This means many cruelty-free cosmetics brands that have refused to abide by China’s animal testing requirements could officially enter the China market for the first time.
Cashless is king
To attract Chinese tourists, more US and international stores have adopted mobile payment technology common in China, such as Alipay and WeChat Pay.
This month, WeChat, China’s biggest mobile platform, which boosts a staggering one billion active monthly users, announced it now allows cashless purchases at 250 US retailers, including Nike and Nordstrom.
Meanwhile, Alipay’s cross-border payments data shows consumers using Alipay overseas increased spending by 30% year-over-year to reach an average of $286, proving cashless payment represents a convenient way to increase Chinese tourists’ sales.
Marketing must-haves to reach Chinese tourists
Successful American and foreign retail companies proactively consider the consumer behavior of Chinese tourists, and adapt their retail stores and marketing accordingly. These companies recognize how they can profit by helping Chinese consumers discover and learn about their products, even if they don’t buy on the spot.
Progressive retailers also develop coordinated Chinese language marketing efforts to target Chinese tourists to increase brand awareness and learn about Chinese consumers’ shopping habits and expectations.
For instance, Chinese consumers often learn about emerging international brands from friends and family who study or travel abroad, and US and foreign products can gain popularity through word of mouth before they even reach Chinese stores. To engage Chinese tourists, more retail companies are developing content for popular Chinese online platforms like Little Red Book, Mafengwo and WeChat.
The vast market of Chinese tourists who travel during Golden Week represent a lucrative target market, especially for US and foreign companies selling products in in-demand categories. Consider reaching these increasingly affluent tourists by adapting your business strategy to include emerging regulatory opportunities in China, mobile payment options and a content marketing strategy for Chinese consumers.
Franklin Chu, managing director of Azoya USA, is an expert in China cross-border e-commerce. Franklin also serves as President of Sage Capital Group Inc. a private equity and investment management firm and is a graduate of Yale University and Harvard Business School.