But Retailers May Respond To Greater Chinese Demand By Raising Prices
This week, Xinhua writes that the euro’s depreciation against the yuan has lured more Chinese — mainly wealthier individuals from the prosperous urban east coast — to travel to European countries, looking to pick up luxury brands at a comparative bargain. From the article, which notes that the yuan has strengthened 20% against the euro since the end of last year:
Li Yaoyi, resident of Hangzhou, capital of east China’s Zhejiang Province, has just finished a fruitful trip. “A 1,000-euro purse now costs about 8,000 yuan, which is about 1,400 yuan cheaper according to the converted price paid for the commodity in the same period last year.”
Louis Vuitton, Omega and some other luxury brands now cost less in Europe than in Hong Kong or Macao, two other popular Chinese destinations for shopping trips, Li said.
Shopping trips to European countries before September have mostly been booked out through major travel agencies in large east China cities where demand is highest.
While this topic is in the papers again this week, it’s been bandied around for a while. In May, Jing Daily posted a roundup of Chinese-language articles that looked at the possible effects a depreciating euro would have on Chinese travelers, shoppers and overseas students. At that time, the Chinese media as a whole seemed — and still seems — pretty excited at the prospect of cheaper travel (with the intent to shop) to Europe, as this Zhejiang Online article illustrates:
“The change in the euro exchange rate has increased the purchasing power of the RMB, which has put European luxury goods within the reach of common people, making the U.K. and France a travel and shopping paradise,” an individual in charge of European travel at the Sanqing Travel Agency said. According to their observations, the per capita spending of travelers from Jinhua (a city in Zhejiang province — JD) in Europe increased dramatically, illustrating a growing trend. Many tourists have spent more than 100,000 RMB ($14,640) each, mostly for personal consumption or for friends or family, and generally on luxury goods.
However, then and two months hence, a more pragmatic minority viewpoint has held that while luxury goods may see a high-single to low-double digit drop in price for Chinese travelers for a brief moment, the brands most sought after by Chinese shoppers will simply respond to this greater demand by raising prices, likely keeping prices far below what they’d cost in mainland China but roughly on par with Hong Kong or Macau. In May, Phoenix Online tempered exuberance about a so-called “golden period” for wealthy Chinese shoppers by noting,
luxury industry insiders have said that the [European] shopping “golden period” will not last long, because the price of luxury goods will be adjusted to make up for the lower exchange rate.
Today, the low expectations called for by Phoenix were further covered by China.org.cn, which cautioned readers that major brands like LV are likely to adjust prices to account for the falling euro often over the next year or two.
So, if we do see a rise in the number of Chinese travelers and shoppers this summer in Europe, can we expect this rise to be sustainable? Much of it depends on whether prices for visas, airplane tickets, accommodations and food are adjusted along with luxury goods. For the short- to medium-term, however, we’d expect prices for most of these things to remain lower, as Europe could use the influx of tourist cash. Now the only question for European hoteliers and non-luxury retailers is, strangely enough, how to get these tourists to actually spend, since Chinese travelers might not care to “cash in” many of the discounts a lower euro brings. As economist Andy Xie wrote this week for Caixin,
[American tourists] stay at nice hotels, drink good wine, and eat expensive French food.
On the other hand, Chinese tourists go in groups, stay in cheap hotels, eat instant noodles and then spend ten thousand euros on an LV bag…Chinese leave with something that will last, while Americans put everything in the stomach.