Loss of Chinese tourists forces Europe’s luxury retailers to rethink

On a train through the English countryside, a woman’s voice speaking Mandarin Chinese announces Bicester Village, a designer outlet centre near Oxford. There, Chinese-speaking staff stand ready in luxury fashion stores from Burberry to Tory Burch. But among the shoppers, the language is no longer often heard.

Chinese tourists, once the biggest driver of luxury sales, have almost disappeared from European high streets since the closure of China’s borders in 2020. With no clear date for their return, retailers are having to come up with new tactics.

Rather than selling easy-to-grab items to fast-moving tourists, sales teams are having to slow down and personalise their services for pickier locals.

It is a dramatic transition for a sector that previously concentrated on catering for Chinese tourists. In the decade before Covid hit, Chinese consumers became by far the world’s biggest spenders on luxury goods, making one-third (€93bn) of global sales, according to consultancy Bain. But they only made one-third of those purchases within China.

They made the rest on trips abroad, particularly in Europe. Chinese shoppers felt buying from European flagship stores was more authentic, and it was also much cheaper: they could shop tax-free using European rebates.

As a result, Chinese tourists became the highest per-capita luxury spenders among all travellers, accounting for two-thirds of the sector’s sales in Europe before Covid.

“It was on steroids before the pandemic,” said Achim Berg, global leader of consultancy McKinsey’s luxury group.

In the UK in 2019, people from China made up only 5 per cent of non-EU visitors to the UK, according to VisitBritain, the country’s tourism board. But they accounted for 32 per cent of all tax-free shopping, according to data from Global Blue, a tourism shopping tax refund company.

“Retailers really defined the shopping experience around Chinese tourists,” said Claudia D’Arpizio, Bain’s global head of fashion and luxury. Not only did retailers hire Chinese-speaking staff, they focused stock displays on the products favoured by Chinese buyers, particularly bags, which could be quickly picked up by a traveller in a rush, as opposed to clothing, which needs to be tried on.

Jingjing Zhou, a sales assistant in Paris department store Galeries Lafayette, was one of those recruited before 2020. “It was the best time to enter the sales industry,” Zhou said. “Very few Europeans learn Chinese, so as an overseas student you could get hired, make great sales, then get a permanent contract. Nowadays, it’s not so easy for my friends to get into this industry.”

The biggest stalls in Galeries Lafayette, from LV to Longchamp, all have at least one Chinese speaker on duty, but these days Zhou mostly uses her French. In the first quarter of 2022, just 200,000 Chinese people travelled outside of Greater China, one-hundredth as many as in the same period in 2019, according to the China Outbound Tourism Research Institute.

While luxury groups like LVMH strongly grew their overall revenues during the pandemic through sales in China, they have had to change tactics at their European stores to court more local buyers.

“It’s pretty expensive for sure. All that money spent in training, because the whole shopping experience has changed,” said D’Arpizio.

A recent surge in Middle Eastern tourists, as well as US visitors buoyed by the strong dollar, has helped fill stores. Eduardo Santander, CEO of the European Travel Commission, said the lack of Chinese tourists left the many luxury retailers that relied heavily on them with “a huge feeling of loss”, but had spurred “a huge effort to diversify”.

Retailers have personalised their services. During Europe’s Covid lockdowns, shop assistants contacted customers via WhatsApp with tailor-made recommendations. Berg sees a “possible return to the old idea of service and store management from the 1990s, the little black book with all the customers’ addresses and preferences in it”.

“You have to do much more to attract local customers,” Berg said. “They can come back, they have more time to spend, versus an international customer that was determined and straightforward.”

Zhou said local shoppers at Galeries Lafayette were “detail-oriented”. “Chinese tourists are more happy-go-lucky in making purchases,” she said.

Industry analysts expect Chinese tourism spending to return to pre-Covid levels by 2025, but such predictions depend on a softening of Beijing’s commitment to its tough “zero-Covid” policy.

And Chinese buyers are unlikely to be as dominant a force in European high streets as they were in 2019. Instead, much of their purchasing power looks set to stay at home.

During the pandemic, Chinese consumers’ luxury purchases swung from being made 70 per cent abroad to 70 per cent in China, according to Yaok Group, a Shanghai-based high-end lifestyle consultancy.

“After Covid, we forecast that the tourist armies will return, with a bounceback in ‘revenge spending’,” said Ting Zhou, founder of Yaok Group. “But in the long run, it will not go back to 70-30. More like 60-40.”

To adjust, luxury retailers are expanding their local presence in China.

“The next step is digging down into the next-tier cities, outside of Beijing and Shanghai,” said Zhou. After closing down a Paris annex built for Chinese shoppers, Galeries Lafayette is planning to open its first Shenzhen store in 2023.

China-based retail sales fell in the second quarter of this year because of a series of harsh lockdowns in Shanghai and Beijing. But in the medium term, forecasts show Chinese consumers’ overall dominance of the global luxury market growing.

In 2020, the Chinese mainland was the only luxury market in the world to expand year-on-year, according to Bain. And the portion of global sales made to Chinese nationals hit 46 per cent in 2021, said Zhou. “In their heart, China is the market luxury groups will not let go of,” she said.

Additional reporting by Nian Liu in Beijing