Five key takeaways from TFWA’s China Watch Webinar

This morning’s China Watch Webinar, hosted on the TFWA 365 platform, analysed some of the forces shaping Chinese travel retail today through the eyes of a diverse speaker panel. We summarise the key themes discussed, with more coverage to follow in DFNI May Asia Special Edition in coming weeks.

TFWA Managing Director John Rimmer emphasised the importance of China in travel retail. “China is a crucial market on [several] different levels. It is a vital and growing tourist destination with a vibrant internal tourism market, led by destinations such as Hainan and Macau, and mainland cities such as Chengdu. It is also a vital generator of outbound tourist traffic – which may be on hold owing to the COVID pandemic – but which we are sure will be reignited as soon as the situation allows.”

#1 Generation Z are China’s – if not the world’s – most important travel retail customers

Rimmer pointed out that China is increasingly becoming a trendsetter with the desires and expectations of young Chinese influencers and consumers setting the agenda for brands and retailers all over the world. “Understanding young China has never been more important for the companies in our industry wherever they are based,” said Rimmer.

Zeng Qun, Deputy General Manager at Wangfujing Duty Free, a new entrant to the Chinese duty free market, leveraged the company’s near 70 years’ experience in Chinese domestic retail to highlight opportunities via Chinese customer segmentation. The most interesting, and indeed important of these, is Generation Z – those born between 1995 and 2010.

Latest stats show China’s Gen Z account for 19% of the population and amount to around 260 million people. In 2021, their consumption reached RMB14m, accounting for 13% of the country’s total household expenditure – thus far exceeding spend of the older generations.

Qun identified four main characteristics of Generation Z consumption habits: they have a more global perspective; are easily influenced which is reflected in their purchasing decisions; with stronger personalities that want to stand out and be unique, they are more demanding from brands on style, features and convenience; last, they are increasingly looking for experiences. As such, Wangfujing Duty Free is taking these trends into consideration when planning its retail business for the future.

Rocky Chi, Head of Planning at Emerging Communications, a leading agency specialising in China market trends, shared some surprising facts on young Chinese consumers: she said that rather than impulsive, 90% Generation Z actually make considered purchasing decisions. “They also value quality over quantity and would rather spend more on a particular item. That makes them just as price-sensitive as previous generations,” she pointed out.

#2 Transactional duty free is out – experience is essential

Eudes Fabre, CEO North Asia of Lagardère Travel Retail said that among Chinese consumers, there is greater demand for airport retail that is less transactional, but more geared towards discovery and experience, including introducing brands or categories that are not traditionally found in airports.

Echoing this sentiment, Chi of Emerging Communications said: “Duty free shopping is no longer a transaction and a one-off purchase. Communication is no longer enough and I would say the cooperation era has arrived, calling for a synergy between customers, influencers and brands.

She stressed that strategic marketing planning in this environment is essential. “Constantly review your Chinese marketing approach and reshape your strategy to better align with the ever-changing context in China, especially in the travel industry, as well as the constantly changing behaviour of your target audience segments to ensure that you are always aligned with them,” she advised.

#3 The rise of Chinese brands and national pride

The China Watch seminar included insights from Sun Hefang, the award winning Founder and Designer of Hefang Jewelry, a rising Chinese brand.

“We have noticed that the young [Chinese] consumers are less likely to blindly pursue luxury brands when making purchasing decisions. Instead, they value that express their personalities. They consider not only brand awareness, but the story and emotion the product conveys.”

She identified Hefang as a brand that “that can showcase the allure and power of Chinese design”.

Fabre of Lagardère said the retailer is working on capturing some of the trends mentioned throughout the webinar.

“In spite of the near-term challenges, there’s still demand for new brands, new categories and new concepts. The growth of new categories, for example, sportswear, especially coming out of the recent Olympics, has really good potential in our channel. And also the strong dynamism of local, high quality Chinese brands across a spectrum of categories, which I think relate well to the keen interest of local traveller, but especially the younger generations.”

Discussing the concept of ‘Guochao’ and products that convey national pride, Eudes said the concept is broad based and cutting across generations, but Generation Z are the most influenced in this area.   “In one sense, it’s a question of national pride, but it’s also driven by the emergence of these Chinese mega brands that are very strong in their own right,” he pointed out.

As such its important for international brands to have a customised approach to China and specifically its travel retail market, he advised.

Jason Cao of the Duty Free Expert blog also identified a growing number of Chinese suppliers and brands as one of the biggest changes the Hainan offshore duty free market has seen recently.

#4 Hainan has much more to offer

On the subject of Hainan, Lagardère’s Fabre stated that record sales for Lagardère during the recent Chinese New Year are an “opening act” for what is expected to be another strong year, off the back of a very strong 2021 on the Island.

“Overall the key takeaways are that the market fundamentals [of Hainan] are strong, and will remain strong. We saw a record Chinese New Year period which I think is the opening act for what’s going to be another strong year – coming off a very strong year last year. The other learning is that Hainan is a place to experiment new models for our industry. In the medium to long term, the duty free licence holders will continue to have a strong advantage on the island, which means that there’s still a lot of room for healthy competition, but also the strong innovation that can drive.”

The big change in Hainan over the past two to three years is it’s starting to attract clientele from tier-one cities, the wealthy markets. “They have strong expectations in terms of product selection, but also on service quality. Overall, I think the market opportunity remains unaddressed. The opportunity is still massive for international brands, but also for local brands. There is strong promise from Hainan,” he added.

Jason Cao of the Duty Free Expert blog added that the five duty free license holders on Hainan Island are now entering the third stage of their projects which means more space and upgrades. This stage, which he calls ‘Offshore Duty Free 2.0’ involves inviting new brands to come to the island.

#5 Big opportunity in secondary locations in China

Nancy Dai, Market Analyst at travel trends specialist ForwardKeys, said that some of the new forces that will shape the future of travel retail in China include the growth of Chinese airports and the rise of second-tier cities. In 2021, the recovery of domestic air travel from tier 2 cities outperformed that of tier-one cities compared to 2019. “Although tier-one cities still represent more than half of international traffic, tier-two cities increased their share during the pandemic,” said Dai.

Lagardere’s Fabre also said that future traffic growth in China will come from secondary locations rather than the key hubs: “The key advantage of China is the huge size of the territory and the diversity. [It has a] wealth of geographies, climates, cultures and people, and Chinese travellers are discovering/rediscovering the appeal of travelling within China.”

New locations In China are becoming more accessible through the development of airports, point to point flights and the rapid development of high-speed rail. “The network is really making it very convenient to go see locations that used to be are quite remote, especially in western China, for instance,” he says.