Is Asia’s Repatriation of Luxury Spending Permanent?
With international travel corridors gradually reopening, luxury brands need to re-evaluate investment priorities as some clients in high-growth markets like South Korea and Thailand start buying abroad again while others continue shopping at home.
KEY INSIGHTS
- Repatriation has compensated for inbound travel retail losses in some Asian luxury markets, but the future is uncertain as outbound travel returns.
- Upmarket mall and department store groups across Asia are expanding or upgrading in response to luxury brands increasing their footprint to capture domestic demand.
- The landscape is complicated by brands’ price harmonisation efforts and localisation strategies amid consumers’ changing priorities and pent-up demand to shop abroad.
The rationale behind Louis Vuitton’s decision to do a spin-off show earlier this year in Bangkok was not just about paying tribute to the brand’s late men’s artistic director Virgil Abloh or giving a nod to the Thai capital. It was also about a phenomenon that has been spreading across much of Asia since the onset of the pandemic.
The repatriation of luxury spending was never a trend unique to China, despite headlines that may have implied otherwise. From Thailand to South Korea, the shift toward domestic consumption has made Western brand executives rethink their global retail footprint and allocate investment in new ways. Now they must figure out how permanent repatriation will be in each market because the stakes in Asia will only get higher.
By 2025, Asians are expected to account for more than half of the global luxury goods market. Consultancy Bain & Company forecasts that, following a dip during the pandemic, they will make up between 55 and 64 percent of total spend, up from 43 percent in 2019. The Chinese and Japanese will remain the two biggest spending nationalities, but others are on the rise.
Asia-based store managers and retail partners of global luxury brands — many of whom saw their share of local client spend increase due to international travel restrictions — have the most to lose if customers return to the pre-pandemic status quo of buying much of their wardrobes overseas. As travel corridors begin to gradually reopen, local players must now give local customers added incentives to continue shopping at home and do so in a way that fortifies the existing bond between brand and client.
IconSiam, the luxury mall owned by Siam Piwat Group where Louis Vuitton operates one of its six Thai boutiques, did exactly that for the French megabrand when it hosted that June spin-off show. Local clients were given exclusive access to the brand through an event that helped anchor it in more locally relevant cultural references and people while maintaining an otherworldly allure.
Louis Vuitton’s cast of Asian models on the runway and its creative collaboration with Thai film director Sivaroj Kongsakul lured high-profile Thai celebrities like Urassaya Sperbund and Mario Maurer as well as South Korean actor Park Bo-gum to the red carpet at the mall. The buzz generated on social media and in Asia-based fashion magazines by the event was felt across the region in much the same way as the brand’s Singapore show last year.
At this crucial travel juncture, other Asian markets are getting even more attention from European luxury brands.
Referring to Christian Dior’s first fashion show in South Korea at Ewha Womans University in April, chief executive Pietro Beccari said, “This year, the house is forging new powerful ties with the Republic of Korea,” indicating his bullish stance on the luxury market that proved particularly resilient during the pandemic thanks in part to the repatriation trend.
At its Seoul show, Dior arranged for brand ambassador Jisoo from K-pop band Blackpink to sit front row along with fellow Korean celebrities Suzy Bae and Olympic gold medallist Yuna Kim. Shortly after, the French maison opened another giant concept store in the heart of the city, this time in a similar style and scale to its Paris flagship.
Staff welcome guests at the Dolce Hanoi Golden Lake Hotel, a gold-plated luxury hotel in Hanoi, Vietnam. (Getty Images)
Since then, the luxury industry’s collective efforts to serve Asian customers where they live, work and play across the region have only accelerated. Dior recently presented events in Ho Chi Minh City, Vietnam and Bali, Indonesia and Burberry took its TB Monogram pop-ups on tour, hosting events at holiday destinations including Ananti Cove in South Korea’s Busan and Singapore’s Tanjong Beach Club.
While such events are believed to be a good return on investment for many players, the question remains: will they be enough to continue to inspire Asians to spend at home once international travel flows return to levels closer to those of the pre-pandemic era?
Intra-regional Tourism to Change Shopping Patterns
As luxury brands become even more reliant on Asian consumers in the years ahead, they will need a relatively good estimate of the proportion of spend that each nationality makes at home compared to the proportion they make abroad. Otherwise, brands will find it hard to know how much to invest where and how to engage with clients once they are on the move again. That, however, is looking increasingly difficult to forecast.
Since removing almost all Covid-19 travel restrictions in July, Thailand’s luxury shopping centres have witnessed a steady stream of customers leaving with bags bearing the logos of luxury brands. At weekends, there are once again queues at IconSiam and other malls outside boutiques like Gucci, Hermès and Balenciaga, with eager shoppers serving as a visual reminder of what life was like in upmarket districts of the Thai capital before the onset of the pandemic.
Scenes like these — of both local and foreign shoppers circulating in Thai malls — were a rarity during much of the past two years.
Marina Bay Sands in Singapore
Marina Bay Sands luxury shopping centre in Singapore. Hu Chen via Unsplash.
Most of the 3.8 million international tourists who arrived in Thailand between January and mid-August, were intra-Asian travellers from Malaysia, India and Singapore, according to Taweesin Visanuyothin, a spokesperson for the national government’s Covid-19 task force.
Though it is not known how many of those tourists were luxury consumers, some will have certainly gone shopping in the many malls and premium outlets that help draw foreigners to cities and resorts across the country. Tos Chirathivat’s Central Group, Chadatip Chutrakul’s Siam Piwat Group and Supaluck Umpujh’s The Mall Group are among the big retail landlords providing space for global brand boutiques across shopping centres in popular destinations like Bangkok, Pattaya, Phuket, Koh Samui and Chiang Mai.
Thailand, which relied on tourism for around 20 percent of its GDP before Covid-19, experienced its largest economic contraction since the Asian financial crisis of 1997 during the pandemic. However, the country’s luxury fashion market appears to have experienced the opposite trend, despite an absence of foreign tourists for much of the pandemic.
‘Meteoric’ Rise in Domestic Luxury Spending Continues — for Now
Siam Piwat Group reports some luxury brands are now experiencing “meteoric” sales in Thailand and seeking to double their store space across its malls early next year due to the surge in local luxury spending.
“During lockdowns, demand from affluent local customers helped compensate for most of the loss of international shoppers,” said Chadatip Chutrakul, CEO of Siam Piwat Group, which owns high-profile shopping centres such as IconSiam, Siam Discovery and Siam Centre.
Thailand’s overall luxury market is this year expected to outperform sales levels seen before the Covid-19 outbreak, according to a report released by Euromonitor International.
“The decline in tourists has made us change our strategy to focus on local customers’ needs and requirements, allowing us to build a robust domestic market,” Chutrakul explained.
“Over the past two years, there has been no decline in luxury spending — only a triple-digit increase as the result of the consolidation of local Thai spending in the domestic market,” she added, referring to the repatriation of spend from Thai consumers who did much of their shopping overseas before the onset of the pandemic.
Tomo Koizumi Spring/Summer 2020 at Rakuten Fashion Week Tokyo in Japan.
Sales at IconSiam surged 43 percent during the final quarter of last year. The head of the company’s shopping centre business division, Santuntorn Asaves, said many luxury stores there have been maintaining a larger stock of their latest release items than their counterparts in Hong Kong and Singapore.
According to Chutrakul, shopping domestically has become more convenient and cost-effective as most luxury brands have been spurred on by the collapse of tourism during the pandemic to make more progress in price harmonisation efforts across key markets.
Expansion of Resilient Asian Malls and Department Stores
South Korea’s luxury market has already surpassed pre-pandemic levels of luxury spending, thanks mainly to repatriation, which more than compensated for the lack of inbound tourists.
Seo Yong-gu, professor of business administration at Sookmyung Women’s University, said that while the overall economy was hit hard by Covid-19, about a third of the country’s households saw an increase in their income. “Their revenge consumption, [spurred by] the restriction of overseas trips, heated up the luxury market,” he said.
As early as 2020, Euromonitor confirmed that sales of luxury goods in South Korea — including brands like Chanel, Louis Vuitton, and Christian Dior — had reached $12.54 billion compared to $12.52 billion in 2019. The data showed three major department store groups, including Lotte, Shinsegae and Hyundai Department Store Co., reporting strong increases in sales during special discount promotions.
Since then, all three have been investing in big new openings and upgrades. In 2021, Hyundai Department Store Co’s chief executive Kim Hyung-jong launched the colossal 89,000 square metre The Hyundai Seoul store in 2021, attracting brands like Gucci, Prada and Burberry.
At Shinsegae, vice-president Chung Yoo-kyung’s team opened a huge department store in the city of Daejeon and announced plans to expand to a luxury resort on Jeju Island after bringing Chanel’s pop-up to the holiday hotspot that year. Over at Lotte Shopping, new CEO Jung Jun-ho has been making waves after his predecessor opened another department store in Hwaseong.
In Malaysia, Dato’ Joyce Yap, CEO and retail planner at the Kuala Lumpur-based shopping centre operator Pavilion, says that some malls in that country have experienced a similar trend to Korea’s big players where the loss in luxury sales to tourists was replaced by local spending.
Before the pandemic, international tourists accounted for 30 percent of Pavilion’s shoppers with an average spend that was three to four times higher than local shoppers. However, she notes that sales of luxury goods overall have surpassed pre-pandemic levels.
Yap said customers who couldn’t travel overseas also benefited from the increased stock allocation to Asian markets by luxury brands. Looking forward, “where pricing is concerned, I believe that when you take into account exchange rates, taxes and travelling costs, luxury items may not necessarily cost less overseas; or if they are, the margins are getting narrower.”
Yap noted more in-store, private and smaller-scale events by luxury brands in Malaysia as they have shifted their focus to the “quality” of shoppers rather than “quantity.”
“Local stores have evolved and elevated to higher standards of fit-out, service, as well as wider and deeper product assortment to be comparable, if not on par, with the flagship stores overseas,” Yap said.
In India, the effects of repatriation may not have fully played out yet. But Reliance Industries chairman Mukesh Ambani is building at least one new luxury mega-mall, Jio World Plaza, which according to Reuters is set to open next year with dozens of mono-brand boutiques from Louis Vuitton to Gucci, in a bid to tap the growing demand for domestic consumption in cities like Mumbai.
Inbound Travel Retail Is Slowly Picking Up Again
All that aside, brands mapping out their Asia retail footprints and e-commerce strategies must consider the fact that international travel has started to slowly recover.
Currently, most countries in Southeast Asia, including Singapore, Thailand, Indonesia, Malaysia and the Philippines, no longer require fully vaccinated travellers to take Covid-19 tests before entering the country. The Malaysian Association of Tour and Travel Agents reports that Malaysia welcomed around one million international visitors in the first two months since borders opened on April 1, and it expects to receive 5 million foreign tourists by the end of this year.
Many of these tourists are intra-Asia regional travellers who may be foregoing some of their purchases in their home countries to buy elsewhere in Asia.
“Over these past few months, we have been receiving a steady stream of international travellers visiting Pavillion KL and we remain optimistic and encouraged by the increase in international shoppers,” said Yap.
China’s southernmost province has cemented itself as a leading domestic shopping hub over the pandemic thanks to ancient and modern attractions.
China’s Hainan province has cemented itself as a domestic duty-free shopping hub over the pandemic. (Getty Images)
Across the border in Singapore, the value of luxury goods sales is expected to rise significantly again this year, according to Euromonitor, as Covid-related movement restrictions come to an end. The Singapore Tourism Board predicts international visitor arrivals will reach between four and six million this year.
“With the reopening of borders, we are also witnessing an influx of tourists with higher spending power and who desire curated experiences,” said Hazel Chan, vice president of retail at Marina Bay Sands.
Singapore’s high-profile luxury shopping destination, The Shoppes at Marina Bay Sands, recently expanded its luxury retail offering with a series of new flagship stores and new-to-market luxury brands, including Southeast Asia’s first Acne Studios boutique.
Hong Kong-based luxury travel retailer DFS Group recently re-opened its T Galleria by DFS in Bali, Indonesia, after closing for two years due to the pandemic. The group has also launched co-branded stores with its strategic partner in Vietnam at Hanoi Noi Bai International Airport, aiming to capitalise on the increase in international tourists in the region. This underscores the fact that the repatriation trend has not been limited to duty free players on China’s Hainan Island.
Earlier this year, Thailand’s King Power introduced its refurbishment campaign at Suvarnabhumi Airport, which assembled more than 20 luxury brand stores, including Cartier, Bottega Veneta, and Saint Laurent. Dior, Louis Vuitton and Gucci also opened stores at the airport this year as international tourists returned.
However, those countries opening later than others are only now starting to see a wave of incoming travel retail.
“Since group tours in Japan [were] and China are still facing restrictions, international tourists — especially Southeast Asians — are coming to Korea, which has started to push for pre-pandemic recovery with reduced quarantine measures,” an official from Lotte Duty Free told The Korea Herald, adding that Lotte and Shilla Duty Free hosted Thai clients flying into Jeju Island under a visa-free entry program to shop.
Though Japan has only just re-opened its borders to mass tourism on October 11, Asahi Shimbun noted that local clients had already offset the lack of spend by foreign tourists at some big department stores earlier this year. The local media outlet cited sales of luxury watches and jewellery exceeding pre-pandemic levels for four straight months until July and “especially brisk” business at stores like Isetan’s main Shinjuku outlet in Tokyo.
Across many Asian markets, luxury brands have also been ramping up their domestic e-commerce capabilities and nowhere has that been more apparent than in China.
JD.com’s president of international business Kevin Jiang secured an impressive list of brand partners for the platform in recent years, including Prada, Louis Vuitton, Dior, Bulgari, Berluti and Tory Burch, at a time when JD.com’s race to attract brands was heating up with arch-rival Alibaba as the latter’s luxury division head Janet Wang brokered many deals for its Tmall Luxury Pavilion platform.
The Impact of Outbound Travellers on European and US Retailers
The big travel retail boom for most retailers in most regions won’t come until China loosens its strict ‘zero-Covid’ policies and facilitates easier outbound travel and re-entry through reopened borders.
“We expect Chinese consumers’ luxury purchases to recover to pre-Covid levels between the end of 2022 and the first half of 2023,” said Weiwei Xing, partner at Bain & Company, and co-author of a report that was published before lockdowns hit megacities like Shanghai earlier this year, citing both the continuous repatriation of spending to mainland China and a return to buying overseas.
But what will these complex and sometimes divergent buying patterns mean for luxury brand flagships in Paris, Milan, London and New York not to mention the many multi-brand retailers and department stores in those cities that were hugely reliant on Asian luxury consumers prior to the pandemic?
An outfit by modest fashion designer Anniesa Hasibuan during Jakarta Fashion Week in 2016 in Indonesia. Getty Images.
Clearly it is still far too early to tell and it will continue to be until 2023 or 2024 when global tourism is expected to fully recover, according to BoF and McKinsey’s State of Fashion 2022 report. But pent-up demand for overseas shopping will likely be more pronounced among consumers who were confined within their borders the longest, such as the Chinese.
Regardless of nationality, for a certain profile of luxury consumer across Asia, the attraction to shop in Europe, North America and in emerging regional hubs like Dubai will be as strong as ever.
Helen Sac, consultant director of APAC at trend forecasting agency WGSN, suggests that this is because shopping for luxury goods abroad often plays an important role in building the overall holiday experience for a certain cohort of Asian consumers. “But because the consumer mindset around luxury is changing, I think a lot of the money will be spent on immersive experiences that speak to consumer’s interests,” she said.
Chutrakul predicts that domestic shopping will continue to grow — at least in Thailand — since a critical mass of consumers have now become accustomed to purchasing luxury goods at home. Moreover, the younger generation will be tempted to buy more locally thanks to new tactics that luxury brands have started to deploy like special and limited-edition ranges that are exclusive to specific country locations.
Yap’s assessment, however, is more mixed. “As we learn to live with the pandemic, Malaysians will return to travelling [abroad to shop too],” she said. “However, I believe that their purchasing behaviour for luxury products has [fundamentally] changed.”
“With the speed of…social media, customers yearn for instant gratification of the latest trends and products. If they can purchase a new item immediately locally, they are unlikely to travel overseas to other flagship stores just to buy them even if there is a small price difference.”
Once the pandemic fades further from daily lives and normal travel patterns resume, the most likely outcome, however, is probably somewhere in the middle.
There will be one group of luxury consumers across Asia who look back at local shopping as a temporary phenomenon that they were happy to mostly abandon in favour of old habits overseas. Another group will have been almost fully converted to the repatriation trend of buying domestically. A third group will have found a new happy medium between the two. How this all adds up remains to be seen
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