Armed with newly minted tourist visas, Chinese visitors are coming to America in search of luxury goods. Prepare yourself for the decade’s biggest marketing opportunity.
Several years ago, Julie Sather-Browne, vice president of Sather’s Leading Jewelers in Fort Collins, Colo., was approached by the manager of a local water-purification consulting firm with a significant presence in China. The executive had a slew of Chinese visitors coming to town who wanted to take back gold and diamond jewelry as souvenirs, and was hoping to arrange a group buying trip to Sather’s.
The retailer, however, was reluctant. She assumed—correctly, as it turned out—that the tourists would demand discounts on her already-discounted merchandise. But she relented, agreeing to work with them on prices.
What Sather-Browne learned rather quickly is that while negotiating with Chinese clients could be something of a battle, the business they brought in was too good to pass up. What started as a simple idea grew into a profitable quarterly gathering. “The most important thing is that one of our employees speaks Mandarin,” she says. “That made it all come together.”
Many Chinese tourists hit U.S. stores to buy branded goods such as these Tacori platinum and diamond mountings.
In the past two years, business has been good for the consulting firm, resulting in more Chinese visitors to Fort Collins and, in turn, more tourists for Sather’s, says Sather-Browne. Her store, a member of the Los Angeles–based Leading Jewelers Guild, has no presence in China, is not located near a popular tourist spot, and does not carry a high-profile luxury jewelry brand (e.g., Cartier, Tiffany & Co., Louis Vuitton). But thanks to a fortuitous series of events, Chinese consumers—thus far perceived as competitors to American retailers, due to the pressure the country has exerted on gold and diamond supplies and prices—have proven remarkably good for Sather’s bottom line.
For students of the luxury marketplace, this is hardly news. Members of China’s upwardly mobile middle class have been scouring European capitals for years in search of anything with a luxury connotation: jewelry, designer handbags, well-known watch brands, expensive sports cars. “The Chinese consumer now accounts for 40 percent of all luxury sales in Europe,” says Milton Pedraza, CEO of the New York City–based Luxury Institute.
More recently, however, the Chinese have turned their expensive binoculars on luxury purveyors in the United States. The U.S. State Department’s Rebecca Dodds says tourists from China represent the fastest-growing tourist group in the U.S. and that by 2014, there will be 1.8 million of them here, spending a whopping $9.2 billion.
A Chinese tourist boom is, by all accounts, imminent. Remember The Russians Are Coming, the Russians Are Coming, the 1966 Alan Arkin film? Well, instead of a boatload of Russian sailors shipwrecked just off Cape Cod, there are now planeloads of middle-class Chinese tourists landing in Los Angeles, New York City, and Miami, many of whom are on a mission to storm the retail landscape, armed with stacks of cash and an insatiable desire for luxury brands.
Because social position is a key element in Chinese culture, especially among the Chinese middle class, traveling to the United States is often considered an important status symbol. To highlight their status, Chinese tourists will typically look for a recognizable jewelry brand or jewelry with packaging or a design that is recognizably American. If they can’t find that, or a design that appeals to personal taste, they tend to look for jewelry bargains—particularly in loose diamonds of exceptional color and clarity in sizes exceeding 1 ct.
The implications for U.S. jewelry retailers are significant. Consider the numbers: Today there are an estimated 280 million middle-class consumers in China; that figure is expected to grow to 580 million by 2025. By all accounts, many members of this up-and-coming set are avid luxury shoppers.
To top it off, the U.S. Department of Commerce reports that China is now the second-largest luxury goods market in the world and, as the fastest-growing such market, is expected to reach No. 1 in 2015. In 2009, Chinese consumers purchased 27.5 percent of the world’s luxury goods, according to a study by McKinsey & Co. Every year some 20 million Chinese (roughly the population of Australia) turn 18 years old, adding new consumers and middle-class citizens to an already crowded landscape. Not to be overlooked—especially by the U.S. government—is the high value of the yuan compared with the U.S. dollar, which makes foreign goods relatively inexpensive for Chinese tourists.
In May 2011 alone, the Department of Homeland Security reported a 43 percent increase in Chinese tourist arrivals at the aforementioned airports compared with May 2010. The average Chinese tourist will spend in the neighborhood of $6,300—more than visitors from any other nation except India—some on hotels, some on tours, and some on jewelry, says Richard Champly, a specialist with the U.S. International Trade Administration.
Yet few retailers have developed a sales strategy to capitalize on the wave of arrivals—even in markets where the Chinese are bound to be big spenders. Las Vegas, for example, saw a 38 percent increase in tourist traffic this year, thanks largely to the free-spending Chinese, according to the Las Vegas Visitors and Convention Authority. Yet only a few Las Vegas jewelers have managed to bring those buyers through the doors. An exception is the well-run Kay Jewelers’ Las Vegas store, whose manager tells JCK that Chinese traffic is up about 20 percent over last year.
Not all jewelers have missed the mark. Tiffany & Co., for example, has had stores (now totaling 14) in mainland China for years; they serve as both outlets for Chinese consumers and as advertisements for locals planning their next vacation. As Gregory Furman, founder and chairman of the Luxury Marketing Council, says, “Having a brand easily recognizable by Chinese tourists is a sure way to attract traffic.”
Tiffany’s China strategy seems to be paying off. On an Aug. 26 conference call, vice president of investor relations Mark Aaron singled out Chinese visitors as particularly big spenders, adding the boost from tourist sales was most meaningful in its New York City flagship—where sales grew 41 percent—as well as stores in Florida, Las Vegas, and California (coincidentally or not, all located near the major gateways for Chinese arrivals into the States).
Another retailer with a recognizable brand name is Wempe, a high-end watch and jewelry emporium located on New York City’s Fifth Avenue, where traffic and sales from Chinese consumers have increased “considerably,” according to Wempe USA president Ruediger Albers. “The brand is recognized by most Chinese tourists,” he says. “We didn’t have to do much marketing to attract [them] to this store.”
|Zeitmeister Manchette in stainless steel with diamonds, $2,700, Zeitmeister Quartz chronograph on steel bracelet, $1,520; Wempe, New York City; 212-397-9000; wempe.de|
The opposite holds true at Foxwoods Resort and Casino in Ledyard, Conn., but the owners have embraced the challenge. About two years ago, the casino, which houses five jewelry stores, including Bulgari and Chopard, developed an innovative marketing strategy based on the well-documented Chinese love of gambling. To entice Chinese tourists visiting New York City, they created a program of package tours that start upon arrival at area airports, stop at important East Coast tourist spots, and end up—wait for it—at Foxwoods. All U.S. travel, from pickup to delivery, is, of course, by bus.
Kelly Leung, part of the Asian marketing group at Foxwoods, says that “Chinese gambling action,” as well as Chinese jewelry sales, have picked up nicely over the past few years.
Glen Ross, president of San Francisco’s Shreve & Co., has noticed a similar spike in sales to Chinese tourists since the 2008 Summer Olympics in Beijing. “The trend is predominantly watches from the major brands because of the name recognition,” he says. “But we’ve also seen a transition to other brands not on the radar before, because so many are distributing and advertising in China.”
Ross compares the Chinese luxury tourists to the hordes of Japanese that flooded American cities in the 1980s and ’90s. Like the Japanese, the Chinese, he says, are gradually starting to appreciate lesser-known brands that complement their individual style. He feels it’s only a matter of time before Chinese visitors to the United States make their impact felt at all levels of the luxury sector.
“Obviously the size and scale of the market are daunting at times, but if you’re holding your ground and you add [Chinese sales] on top of it, it can be very beneficial,” Ross says. “There is definitely an opportunity here.”
More on luxury sales on JCKonline.com:
+ The Flush Life
+ How to Bring in Luxury Shoppers—and Keep Them Happy
+ What Upscale Buyers Want for the Holiday