Interviews, insight & analysis on digital media & marketing

Lessons in cross-border luxury

By Martim Avillez Oliveira, CEO – Europe and UK at ESW

The reopening of China provides an immediate commercial boost to brands and retailers but it also provides important lessons on how to meet the needs of customers in other, fast-growing cross-border territories.

As soon as post-lockdown restrictions in China were lifted in early January, airlines saw a 254% lift in bookings. But there is yet no evidence to show that Chinese consumers will return to their old shopping habits, particularly as many of the gaps between domestic and foreign luxury shopping have narrowed.

Before the viral outbreak in early 2020, Chinese shoppers bought 70% of their luxury goods abroad in tourist-driven destinations like Paris, Milan and New York. However, now, many Chinese tourists are opting to stay within Asia. Among Chinese travellers, the top five destinations booked when the regulations fell were Singapore, Japan, Thailand, South Korea and Hong Kong.

All of this has some industry analysts questioning whether Chinese shopping abroad will ever return to pre-pandemic levels and locations, particularly as imported luxury goods are much cheaper in China than they used to be – only 10-20% more expensive as opposed to 50-60% three years ago.

Shanghai-based Jonathan Yan, a principal at consultancy Roland Berger told Reuters recently, “It won’t go back to 70%. I’m sure there will still be a portion of luxury spending in other countries because it’s natural for people to shop when we travel, but it will be more like 50-50.”

However, by looking at online sales, we can see that being confined in country does not necessarily suppress demand for luxury goods. ESW’s Global Voices data shows that 50% of Chinese consumers purchased luxury cross-border in the last six months of 2022 and primarily from the US.

In the UK, luxury department store Harrods, which continued to deliver goods to Chinese customers during the pandemic, welcomed back customers from China with a collection of branded stickers for WeChat – the Chinese messaging, social and payment app, to mark the Chinese New Year on January 22.

Close observation of these trends from China uncovers opportunities for retailers and brands to capture the cross-border shopper online in other territories. Countries indexing highest on brand affinity scores reported increased cross-border sales in the last six months of 2022, creating a map of global demand for brands looking for international growth opportunities in the coming year.  ESW’s brand affinity tracker, informed by research from 16,000 consumers across sixteen countries, reveals China, the UAE, India, Mexico and South Africa scored the highest levels of brand rapport across five markers, including emotional connection, engagement, relevance, and purchasing benefits. 

Despite global economic headwinds, these high affinity markets all reported increased rates of cross-border purchasing from July to December 2022 across four tracked product categories – clothing, footwear, luxury and cosmetics – with total international online purchasing by consumers in the UAE increasing the most at +12%, followed by South Africa +8%, China +7%, India +3% and Mexico +2%.

Overall, global cross-border shoppers have a +13% brand score and +4% above average spend level, highlighting the importance of a robust direct-to-consumer international strategy, one that is able to respond quickly to the significant shift in the market which China’s reopening has brought about.

Right now, the biggest demand for cross-border luxury purchases, based on the number of respondents in each country buying luxury cross-border in the last six months, has come from China 50%, UAE 39%, India 28%, Switzerland 26% and South Korea 25%. In terms of which countries they bought from in the last six months, it’s the US (48%), UK (32%) and France (30%).

While no one can be completely certain knowing what will happen with Chinese spend moving forward, retailers and brands can be ready to capitalise on whatever happens by having the capability to move quickly on new opportunities and countries as they appear.

The complexity of managing operations across multiple territories requires market-tested solutions and collaboration with partners that have experience on the ground, local presence, and expertise, particularly as consumers in each country expect overseas brands to offer them the same services and conveniences as local brands do – across currencies, payment types, returns processes and languages.

For brands and retailers ESW absorbs and manages the risks associated with global DTC ecommerce allowing them to focus on with what they do best – retailing – while enjoying the benefits of new DTC opportunities.