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Chinese consumers to trade up spending on travel over next 5 years


China’s growing middle class is likely to increase spending by 10% and trade up on travel, spas and entertainment over the next five years, as Chinese consumers become better paid and more financially savvy.

Some 55% of Chinese consumers expect a ‘significant’ wage increase over the next five years, according to a new report by consultancy firm McKinsey & Company, prompting higher spending across luxury items such as spas, travel and ‘experiences’ including cinema trips and dining out. ‘We found that consumers are generally becoming more selective about their spending,’ says McKinsey. ‘They are allocating more of their income to lifestyle services and experiences – over half plan to spend more on leisure and entertainment.’

 

While apparel remains in the top three product categories Chinese consumers will spend on if incomes rise (37%, a 3% rise since 2012), a more significant shift is that consumers would spend considerably more on services such as leisure and entertainment (25%, an 8% rise since 2012), travel (23%, up 9% from 2012), and personal care such as spa visits (13%, up 5% from 2012).

 

Luxury travel destinations are also on the rise among younger Chinese travellers, who are keen to broaden their horizons; sun-drenched locales such as the Maldives are profiting from a pick-up in Chinese beach holiday bookings, according to McKinsey.

 

Travel and shopping combined

While travel is the dominant trend driver, shopping remains key and is usually connected when Chinese make travel plans.  More than 70 million Chinese travelled overseas in 2015, taking an average of 1.5 trips. Among these travellers, some 80% made overseas purchases, and nearly 30% base their travel destination choices on shopping opportunities. Around half of their watch and handbag purchases are made overseas, while apparel and cosmetics are the most frequent transactions.

 

Trading up

As their incomes rise, so too do their brand tastes. ‘We found that 50% now seek the best and most expensive offering, a significant increase over previous years,’ says McKinsey. This growth in the premium segment is outpacing the mass-market and value sectors and it’s good news for foreign brands, which still hold a leadership position in Chinese consumers’ perceptions of the premium market.

 

Loyal to brands

Loyalty to favoured brands is also on the rise. The number of consumers willing to switch to a brand outside their ‘shortlist’ dropped sharply. In the apparel category, consumers who are willing to consider a brand they hadn’t before dropped from just under 40% in 2011 to just under 30% in 2015. For personal care products, the proportion of consumers who would only consider brands on their shortlist rose to 83% in 2015, an increase of 11% from 2011.

 

Global Blue takeouts:

• The McKinsey report highlights how the shift away from product-related spending to more experientially based purchasing patterns indicates that the modern Chinese consumer is financially and brand savvy, and prefers to keep an eye on savings, or spend on meaningful purchases.

• Travel and shopping remain connected and are increasingly a primary driver for destination choice; trips are planned around brand preferences.

• Chinese consumers are becoming more brand loyal; in many cases they indicate loyalty to specific brands.

• They are eager to trade up to premium products from mass-market. 


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