Chinese Consumers Look to Europe to Save on Luxury Goods

Shoppers run into Selfridges as the doors open for the start of the Boxing Day sale at their flagship store on Oxford Street in London

As China’s consumer economy burgeons, retail brands around the world are all asking themselves the same question: what do Chinese consumers want?  Research shows that European shoppers, who have been dubbed the “‘Sleeping Beauty’ of European luxury” by McKinsey & Co., are not the ones engaging in retail extravagance.  Instead, Chinese shoppers are to thank – Chinese consumers accounted for half of Europe’s luxury goods sales last year.  It’s pretty safe to say that European luxury goods hold a special place on their wish lists.

Yet China’s household savings rate is one of the highest in the world; in 2010, Chinese consumers saved 38 percent, while American consumers saved just 3.9 percent. You might wonder how frugality factors in to dropping $4,000 US dollars on a single purse…

In a recent story, The Financialist brings up an intriguing point about Chinese consumers and European luxury brands. Namely, Chinese luxury lovers are doing a good deal of their brand indulgence not at home, but while traveling in Europe. According to The Financialist, China’s 30 percent luxury tax, in tandem with a weak euro, means that Chinese consumers can save 45-47 percent by buying European luxury goods in Europe instead of at home. Chinese shoppers may be growing in sophistication and their desire for quality, but they are staying true to their saving habits by making luxury good purchases in Europe routine.

Last London Boxing Day, Chinese consumers stormed Selfridges, a high end department store in the United Kingdom. Photo courtesy of Daily Mail.

Luckily for frugal Chinese consumers, China’s payment infrastructures enable them to buy European products from Europe, and actually avoid the domestic luxury tax.  Chinese shoppers use bank cards from UnionPay, an organization founded in 2002 in the People’s Republic of China that operates under the auspices of China’s central bank. Realizing the potential of Chinese consumers, a growing number of retailers in over 100 countries worldwide accept UnionPay.

UnionPay partners with all major Chinese banks and some smaller ones to create an infrastructure for credit card payments that allows Chinese consumers to shop internationally. Photo courtesy of CNS.

But despite the bank card industry’s rapid growth in China, Chinese credit card penetration is still quite low. Data from iResearch indicates that while 14 percent of online purchases are made through credit card payment, about 70 percent are made through Alipay, a service analogous to PayPal, or its main competitor, Tenpay. Since 2007, in an escrow settlement process, Chinese shoppers have used Alipay to securely purchase goods from foreign e-commerce centers.

Alipay was the first third-party service to provide a cross-border online payment solution.

As an era of Chinese consumerism emerges, western retailers are scrambling to capture the hearts (and wallets) of Chinese consumers. At the same time, Chinese consumers are eager to get their hands on high-quality western goods. So, unless China lifts its heavy luxury taxes, European luxury retailers have it made.