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Will it be a lean Year of the Pig for UK fashion retail?

The growth of the Chinese economy is slowing down and tourist numbers are falling. Drapers investigates the impact on UK fashion retail. 

The influx of Chinese tourists to the UK during Chinese New Year is set to deliver a 4% increase in international transactions over the 90 days to 31 March, tax-free shopping service Global Blue predicts. But with overall spend and visitor numbers from China falling in 2018, can retailers bank on sustained spend by Chinese shoppers beyond the festive period?

Yes – but there are challenges: a slowdown in GDP growth in China, the ongoing US-China trade wars, which could have huge implications for the global economy and, closer to home, an 8% drop in spending by Chinese shoppers year on year in 2018, as reported by Global Blue, and a 9% fall in Chinese visitor numbers.

“If this trend is sustained through Chinese New Year, it is likely to lead to a soft increase [in sales],” suggests Derrick Hardman, Global Blue’s managing director UK and Ireland.

Other experts appear relatively unconcerned about China’s GDP slowdown.

“In 2018 China’s economy grew at its slowest pace in nearly 30 years, however prior to that, growth had been near exponential,” says Kyle Monk, head of insight at New West End Company, which represents retailers and property owners in London’s central shopping district. “China added more billionaires in the last three years than the US has in the last 10, and these ultra-rich consumers cumulatively increased their cumulative net worth by 45% to S$1.2 trillion [£685bn] .”

Chinese malls

Greater China is set to overtake the US as the world’s largest fashion market this year, largely as a result of the growth of its middle class. In 2000, only 4% of the population was middle class. Arthur Cheung, Greater China country manager at Practicology, predicts this will grow to 76% by 2022.

“These numbers alone explain why the Chinese have become the world’s biggest consumers of fashion,” he explains. “This will likely continue as the number of middle-class consumers grows more quickly than in the US. In the western world there is something of a backlash against unnecessary consumption – particularly disposable and fast fashion – but this thinking is not present in China.”

Chinese shoppers have a particularly voracious appetite for luxury brands, and account for almost 33% of the global luxury market.

“They have been a significant contributing factor to the strong performance of European luxury in 2017 and 2018,” says Monk. “We expect the global luxury market to grow 6% in 2019.”

For Paul Barnes, campaign director at UK China Visitor Alliance, the potential to encourage Chinese visitors to the UK far outweighs concerns over a slowdown in the country’s economic growth. Between 2012 and 2017, the number of UK visas issued to Chinese tourists increased by 152% to 537,000, reports Global Blue. “We got 537,000 coming over from a population of 1.4 billion,” he says. “If you’re smart, you gear up for Chinese customers.”

Step forward Harrods, which last year welcomed “tens of thousands” of customers from China who were new visitors. The luxury department store has more than 110,000 followers on microblogging site Weibo and a rewards programme on mobile app WeChat.

“We expect these numbers to increase in 2019, as more and more Chinese luxury customers start to travel globally,” says chief marketing and customer officer Amanda Hill. “While there are certainly issues in the global economy that are at play in 2019, China still represents the largest and best opportunity for luxury, more than any other market in the world. We continuously look at how we improve the shopping experience for the customer, which is why we have recruited more than 200 Mandarin-speaking staff and seasonal specialists.

“We have always been early adopters of digital payment methods such as Alipay in 2016 and WeChat Pay in early 2018.”

New year resolutions

Selfridges launched a “New Year, New Beginnings” campaign this month, anchored by an editorial film by Hong Kong-born London-based photographer Alexandra Leese. The film – featuring both Mandarin and English monologues – gave five London-based Chinese creatives the opportunity to explore the meaning of Chinese New Year. The campaign also featured a mini-program on its WeChat platform, in the form of an interactive personality style quiz, which reveals one of four New Year-inspired themes.

“Each theme reveals tailored content from the campaign, alongside UK destinations and fashion inspiration linked to the sentiment behind each theme,” says managing director Simon Forster. “It’s quite a sophisticated offer that is very user friendly. We wanted our campaign to address the Chinese customers who visit our stores in a way that connected with their lifestyle and interests.”

Although the full impact of Chinese New Year on sales at the premium department store will not be assessed for up to 10 days following the day itself, 6 February, early results are promising, as Chinese customer spending shows an increase on last year. Selfridges expects this o continue to increase this year both in UK stores and on Selfridges.com.

Chinese competition

Retailers’ bid to tap into the spirit of the Chinese customer is key to attracting further spend beyond Chinese New Year. Retailers need to go deeper than the surface numbers and headlines. For example, says Practicology’s Cheung, Chinese tourists are spending more money on experiences and eating out. At the same time, the proliferation of luxury and premium brands with Chinese stores, websites or a presence on Tmall’s Luxury Pavilion means that Chinese consumers can easily buy western goods at home.

When we see headlines about reductions in demand for iPhones or western cars in China, it is not because consumers are no longer buying smartphones or cars. Rather, local brands have improved in quality substantially, and offer better value for money. Chinese consumers love a deal or special offer. International fashion brands need to be aware of the local Chinese brands and ensure that they are remaining competitive on price and quality, too.”

As a result, raising brand awareness, particularly through digital marketing and social commerce, should be at the top of every retailer’s to-do list.

“When Asos failed with a Chinese website, it admitted that it had underestimated how much it would need to spend on marketing, though it was already selling well cross-border online,” says Cheung. “The same is true for all brands wanting to crack Chinese consumers.Influencer marketing – working with Chinese internet celebrities and bloggers – is crucial, as well as investment in providing multiple touchpoints on the main online platforms where Chinese consumers choose to be.”

These include Weibo and the newer social commerce site Xiaohongshu (Little Red Book), which uses social commerce to sell international luxury brands. The mobile app WeChat is also important as both an engagement and sales channel, with 80% of transactions on Tmall involving a live chat session.

As Cheung observes: “This type of Chinese digital marketing and social commerce is far ahead of the west, and is important for sales both in the UK and China.” 

The Drapers Verdict

Capturing spend by Chinese shoppers will be harder for UK fashion retailers in 2019, if forecasts are realised. A drop in visitor numbers during the Chinese New Year period will lead to a softer boost to sales compared to the usual uplift retailers expect.

But there are bright spots. They may be spreading their cash to include more experiences, but Chinese consumers love fashion, so make experiences out of your fashion offer, in stores and online. The latter, in particular, needs to play a pivotal role in luxury retailers’ strategies. Immersing yourself in the digital world of the Chinese shopper is a must to delivering on their needs and desires.

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