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FX drives Chinese to Japan to shop instead of Hong Kong


The weaker yen is driving Chinese globe shoppers to shop more in Japan and less in Hong Kong, as FX movements drive retail tourism trends, especially in Asia, according to new data.

Mainland Chinese tourists are turning their back on Hong Kong as an entertainment and shopping destination due to the continued strength of the US dollar (to which the HK dollar is pegged). Continued anti-mainland sentiment, increased import taxes and a maturing market have seen Hong Kong fall out of favour as a luxury retail destination over the past year, with brands including Louis Vuitton and Burberry re-thinking their retail footprint there.

Newly released visitor numbers for Hong Kong show a -2.5% decline in 2015 with experts warning of further decline in 2016, especially for Chinese tourists, who are driven by travel motives such as ‘consumption taxes, moves in FX rates, and price fluctuations in different geographies for a single product’, says David Dubois, an assistant professor of marketing at INSEAD business school.

As HSBC’s global co-head of consumer and retail research Erwan Rambourg told CNBC, luxury goods are now cheaper in other markets such as Japan, Korea and Australia, which encourages wealthy, sophisticated Chinese travellers to look further than Hong Kong for shopping trips. ‘Price arbitrage doesn’t work anymore [in Hong Kong],’ Rambourg said. Citing the strength of their respective currencies, coupled with the option to shop tax free, he explained it’s cheaper to buy luxury goods in Seoul or Tokyo.

Hong Kong retail sales have been hit badly as a result of lower consumer spending, particularly by mainland Chinese tourists. Sales were down 8.5% year-on-year (YoY) in December 2015 to 43.7bn Hong Kong dollars (5.62bn US dollars) in value terms, the biggest percentage decline since January 2015. Specifically luxury retail sales were down 10% in Hong Kong and Macau in 2015, according to the Business of Fashion.

Chinese globe shoppers are searching out discounted luxury items such as million-yen watches at Japanese premium outlet malls owned by Mitsubishi Estate Co. Here the out-of-town mall owner saw a record year for savvy mainland Chinese visitors, with sales driven by the weaker currency jumping by more than 10% to between 300bn yen (2.7bn US dollars) and 350bn yen in 2015, according to a Bloomberg report.

It’s not just outlet malls that are thriving in Japan. Luxury is booming here while the country’s economy is foundering, writes the Business of Fashion. It highlights the fact that in the year ending December 2015 LVMH sales in Japan jumped 13%, outperforming the conglomerate’s sales growth in Europe and the US, as well as the rest of Asia, where sales fell 5%.

Japan is now Global Blue’s fourth largest TFS destination, where we have doubled our merchant footprint over the last 12 months. Sales performance in Japan is up +42% for January YoY, boosted by Chinese spending, which was up +87% in Japan this month.

 

Global Blue takeouts:

  • Chinese globe shoppers are shifting their TFS behaviour from Europe to Japan, driven by the weak currency, higher long-haul flight costs and the close proximity of luxury shopping within Japan.
  • The new biometric visa requirements for Chinese entering Europe is impacting the number of Chinese tourists visiting the region.
  • Chinese are driving Japan’s increasing ‘luxury hub’ status as the rest of the country endures an ongoing recession.
  • Japan is now Global Blue’s fourth largest TFS destination, where we have doubled our merchant footprint over the last 12 months.


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