I’m in Hong Kong for a few days – all work and no play alas.  But, at least I had a little time today to catch up on some reading and to post an “I’m still alive” message on to Facebook (which is still blocked on the mainland). 

  Most of my reading material was found during a freestyle surfing session on Google News – another site that is regularly blocked or neutered by China’s Great Firewall.   Although much faster than on the mainland, it still took Google’s omniscient search engine a few nanoseconds longer than expected to yield results for my “China retail shopping” search – a sure sign that it’s a hot topic.  But at least the news was worth waiting for. 

  The China Ministry of Commerce has just announced that retail sales have increased by 18 percent compared with the same holiday period last year, China Briefing reports today.  The so-called “Golden Week” National Day holiday was a day longer this year (The Mid-Autumn Festival, the date of which changes with the lunar calendar, was added to what would otherwise have been a seven day break), so the increase is probably not as significant as first appears.  Nevertheless, there are encouraging signs that things are on the up: 

  The report states that the value of retail sales during Golden Week was the equivalent of 570 billion yuan (US$83 billion).  The biggest increase vis a vis the same period last year was in Guizhou province, one of the poorest areas of China.  There, retail sales grew by 37.6 per cent no less.  The second-largest increase was in Chongqing (32.6 per cent), while Henan made it into third place with 31 per cent.  

  The most compelling evidence that business is indeed booming was found in Guangzhou, where auto sales “almost doubled”, according to Business Week (7th October), which cited a Ministry of Commerce nationwide survey of 1,000 retailers that  compared business levels at the start of the recent holiday with those from the same period last year.

  At a national level, as well as automotive, the household electronics category did well, as did sales of digital cameras, mobile phones, and jewellery.  

  Tourism is another big “gainer”.  200 million people were classified as domestic tourists by the China Tourism Academy during the Golden Week, a 13 per cent year-on-year increase.  Beijing, thanks to it being the spiritual epicentre of China’s 60th birthday party, managed to attract the most domestic visitors – 15 million of them and a staggering 59 per cent year-on-year increase, according to a source cited in the China Journal. 

  The 200 million domestic tourists spent an estimated 100 billion yuan – an increase of 25 per cent.  More people may indeed be spending quite a bit more per capita on domestic trips.  But the expenditure is still relatively modest – the equivalent of about US75$ per person.

  These numbers don’t, though, take into account trips to and spending in Hong Kong, Macau and Taiwan.  Taiwan is still at its nascent stage as a destination for mainland tourists (only 11,000 people went there during the eight-day period), but the people who did make the trip spent heavily – the equivalent of over US$2,100 each.  28 times more than the average mainland tourist spent on the mainland.

During 1-7 October, 420,000 mainlanders visited Macau – although it’s not clear how many of those were also counted in the figures for here, Hong Kong, where (from 1-8 October) there were 590,992 visitors from the mainland, 16 per cent more than last year.

   Most mainlanders were not here to visit Disneyland; preferring instead to spend, spend, spend in the shops.   Their expenditure on luxury goods is particularly significant. 

In a recently published paper, The Boston Consulting Group reveals that close to 70 per cent of the buyers of luxury goods it interviewed in Beijing and Shanghai said that they preferred to shop for these products outside of mainland China. 

  Not surprisingly, Hong Kong, thanks to its close proximity, cultural affinity, lower sales taxes, generally more reliable product-provenance, and depreciating currency (which continues to be tied to the US dollar), is the top destination for cash-laded mainlanders.

As Hong Kong continues to extend the Individual Visit Scheme (the list of approved cities is generally linked to the wealth of the city), the number of visitors will rise significantly.  This is great news for Hong Kong retailers of high-end, easily portable goods; but less positive for their mainland counterparts, whose predicament will ironically worsen as wealth increases.  The “second wave” of tourists to countries and shops in other parts of Asia, Europe and the Americas will make matters even worse.

  This phenomenon is set to influence the retail strategies of brands that are premium priced as well as brands that are firmly in the luxury category.  To pluck one example out of the air, Nike shoes are much cheaper at Amsterdam’s Schiphol airport (a key hub), for instance, than anywhere (legally) in mainland China.

  The custodians of the world’s most famous luxury brands have long-since realised that money spent on flagship stores on the mainland should be thought of as a long term global investment in the brand.  In China at least, it would be wrong to evaluate the stores in revenue terms only.  The cash may indeed be registered on the till of the Guccil store in Hong Kong (below), but the relationship with the brand may well have been cemented in the Gucci store in Beijing or, perhaps one day, even in Guizhou province.    

  Premium brands should also be thinking about the future in the same way.

  As for mainland China’s retail sales figures… they will increasingly understate mainland consumer’s actual spending power and influence.

  The reality will be much rosier than the numbers suggest, and this gap will continue to widen roughly in line with the increase in the number of mainland tourists travelling to Hong Kong and beyond.  What’s more, these new luxury-shoppers will increasingly be coming from China’s third and fourth tier cities – the future powerhouses of global luxury shopping.