Wealthy Chinese tourists love Tiffany’s NYC flagship store

Jewellery-hungry Chinese tourists fuelled a surge in US sales at Tiffany this summer, helping the luxury retailer produce robust second quarter profits in spite of a weak economic backdrop.
Tiffany raised its annual earnings outlook on Friday as customers shrugged off economic concerns and continued to purchase its luxury items. The company’s second-quarter performance exceeded the expectations of Wall Street analysts and its shares jumped 7.51 per cent to $67.85 in early trading in New York.
“We are extremely pleased by these results which confirm the growing global appeal of Tiffany’s product offerings,” Michael Kowalski, Tiffany chief executive, said. “We have been able to absorb precious metal and gemstone cost increases while improving our gross and operating margins.”
Outside the US, fears about weak demand were unjustified. Sales in Japan, which was battered by an earthquake and tsunami in March, rose 21 per cent from a year ago. Europe, where many consumers have been hit by government spending cuts, also showed strong growth with sales climbing 32 per cent.
Sales in the Americas rose 25 per cent from a year ago, while sales in Asia were up 55 per cent .
In the US, Tiffany said that more than half of the sales increase was due to increased spending by foreign travellers, led by Chinese tourists. Sales of items priced above $20,000 and $50,000 showed “notable strength”, the company said.
“We were bracing for pockets of weakness, little indications of the macro story coming home to roost in a retailer than has been on fire for longer than a year,” said Brian Sozzi, retail analyst at Wall Street Strategies. “At the moment, we are hard pressed to find negative aspects to the quarter, only a bunch of interesting positives.”
“We  have monitored the needs of wealthy Chinese tourists in the U.S. for the last two years and the first items they buy during their leisure trip in the U.S. are high end jewels and watches. This is a very good news for the American luxury retail industry”, said Pierre Gervois, CEO of China Elite Focus.
Paul Lejuez, retail analyst at Nomura, said that the 41 per cent year-on-year sales increase at Tiffany’s flagship store in New York was the largest since 1990, when he began tracking the company. Calling their sales “off the charts”, he said that Tiffany, which operates 236 stores around the world, could probably increase its prices further without suffering a significant sales slowdown.
“There certainly are a lot of people out there with a lot of money who are looking to spend it,” Mr Lejuez said. “People look at their merchandise as having some innate value, and that goes a long way.”
“Despite continuing economic uncertainty, our strong first-half performance gives us ample reason to remain confident about our prospects for the balance of the year,” Mr Kowalski said.

Source: Chinese tourists in America / Financial Times

China outbound is growing faster than Japan and South Korea

The volume of foreign travel from Asia’s three main travel nations, China, Japan and South Korea, is growing again. Following a nine per cent decline due to the crises in 2009, in 2010 foreign travel from Asia increased by 17 per cent. This represents a total volume of 128 million individual journeys. Asia’s share of foreign travel now accounts for 18 per cent of the world total. With this increase Asia has consolidated its position as the second most important region on the foreign travel market. An evaluation by “IPK International – World Travel Monitor Company”, reveals that Asia is exceeded only by Europe, with a 56 per cent share, as a source of foreign travel.

China, Japan and South Korea have long  been the top 3 countries in outgoing travel from Asia with over one-third (a total of 46.5 million) of all Asians who travel abroad coming from one of these three countries.

And other Asian destinations are also very popular with travellers from these three countries.  Three out of every four international trips by Asians start and end somewhere on that continent. However, the individual markets reveal substantial differences in terms of the destinations. Whereas some 39 per cent of Japanese choose destinations outside Asia, in China only 33 per cent of travellers go outside their own continent, while overseas trips are only undertaken by 20 per cent of Koreans. This trend is also apparent when we consider travel to Europe. Europe receives 3.6 million visitors from Japan and some 3.8 million from China, compared with only about 1.1 million Koreans. Five years ago the proportion of trips to destinations outside Asia was slightly higher. In 2005, for example, the Japanese accounted for 47 per cent of all international journeys from Asia, the Chinese for 37 per cent, and the Koreans for 26 per cent.

Over a period of five years China has seen the largest increase in foreign travel, followed by South Korea and Japan. However, initial data indicates that, in the aftermath of the earthquake and nuclear disaster in Japan, and the subsequent economic consequences, instead of an increase this year there will be a significant decline.

With 15 per cent growth China also occupies first place in travel to Europe.  There has also been a percentage increase in trips to Europe from Japan over the past five years. In contrast with other markets South Korea has not yet recovered to the same extent from the economic crisis. This is very evident in the long-haul travel sector, with trips to European destinations revealing a slight decline over the past five years.

Approximately three-quarters of all foreign travel starting from China and Japan is in the form of a vacation or other private trip. In South Korea this is the motivation for almost two-thirds of all international journeys. By way of comparison: only just under half of foreign trips from India are by people vacationing.

In China in particular vacations now play a much more important role in motivating people to travel than was the case five years ago, the proportion of travel undertaken for vacationing purposes having risen from 56 to 77 per cent. According to China Elite Focus, “ The new generation of affluent Chinese outbound travelers are fully enjoying their holidays, not only as a marker of social status, but with a deeper understanding of the value of their leisure travel”. In Japan the importance of vacation travel, at 67 per cent, was already at a relatively high level five years ago, while in South Korea the corresponding figure remains unchanged at 64 per cent.

A number of significant trends are evident in the type of vacation too. Round trips are particularly popular with holidaymakers from all three countries.  In this respect, while there has hardly been any change on the Japanese market over the past five years, round trips are definitely becoming the most popular form of vacation for the Chinese and South Koreans.  In recent years city tours have been increasingly chosen by vacationing Japanese, who now prefer them to beachside destinations. Among the Chinese the situation is completely reversed, with city tours declining in importance over the past five years and now lagging some way behind beach vacations in popularity. In South Korea city tours and beach vacations are of roughly the same importance, but with a decline in city tours as a percentage compared with previous years.

Travel Marketers Aren’t Prepared for Flood of Affluent Chinese Tourists

Global hotel chains, airlines and luxury retailers can expect tens of millions of new customers from China in the coming years, but few Western companies are prepared for this influx or have a clear understanding of exactly what Chinese tourists require and expect for their yuan.

The growing number of affluent Chinese travelers “will completely change the face of tourism,” especially in hot destinations such as New York, Las Vegas, London and Paris, said Pierre Gervois, president-CEO of China Elite Focus, which specializes in affluent Chinese outbound tourism. “There will be an influx of wealthy travelers.”

China will overtake Japan as the world’s second-biggest tourism market by 2013. Sixty-six million Chinese will travel overseas this year — a 15% increase over 2010 — and that number is expected to reach 100 million by 2020, according to the World Tourism Organization.

Just a few years ago, few Chinese went further than shopping excursions to Hong Kong or gambling junkets to Macau organized by budget tour group operators. Today, Chinese tourists are more likely to be affluent independent travelers looking for customized experiences along with the comforts of home.

“Everyone stands to benefit because the Chinese market is growing so fast,” said Bruce Ryde, general manager of InterContinental Hotels’ Hotel Indigo Shanghai on the Bund, who appeared on this week’s episode of “Thoughtful China,” a video program produced in China.

But the global travel and tourism industry doesn’t understand these travelers yet. “The biggest issue is language,” Mr. Ryde said. “The Chinese traveler appreciates and needs a certain amount of translation [when] it comes to menus, hotel information and just general conversation. There needs to be some preparation.”

“The most important thing the hotels need to be thinking about is understanding and tapping into the cultural differences, and ensuring they understand what’s important to Chinese travelers,” said Gary Rosen, who recently resigned as senior VP and head of global operations for InterContinental Hotels Group.

Some hotel and retail chains have started to tap into this market. This summer both Hilton and Starwood introduced touches aimed at Chinese travelers such as stocking instant noodles, Chinese teas and tea kettles in mini-bars, offering Chinese TV channels and slippers in guest rooms, and serving congee (hot rice porridge) and dim sum at breakfast.

Food is especially important. Don’t be surprised, Mr. Gervois said, if Chinese tourists, both rich and poor, prefer instant noodles in the room over local cuisine.

Hilton and Starwood have also translated corporate websites, welcome letters and local sightseeing information into Chinese and hired dedicated front desk staff fluent in Mandarin.

The goal is to make them feel at home the same way Western hotel chains cater to Western travelers in Asia, said P.T. Black, “Thoughtful China’s” senior creative director in Shanghai. “If a hotel can provide Americans with a hamburger in Hanoi, then Chinese should get noodles in Nice.”

Luxury retailers and top tourism destinations such as the Louvre in Paris have followed suit. Many Chinese still don’t have Western credit cards, for example, so Harrods in London brought in 75 UnionPay machines “so Chinese can use their own local cards to get money out,” said Chloe Reuter, a luxury retail specialist based in Shanghai.

While Western companies struggle to adapt to Chinese travelers, Asian firms are trying to expand, such as Hong Kong-based Shangri-la Hotels & Resorts, which recently opened a five-star property in Paris.

“All the luxury hotels in Paris are really worried,” Mr. Gervois said. Their owners realize Shangri-la “knows exactly how to talk to wealthy Chinese travelers, what kind of food they expect, what kind of service they expect. I think Chinese brands with a lot of quality and content will really have big success expanding abroad.”

Foreign companies should also be working harder to provide online product information and reservation options in China, which has over 400 million internet users, Ms. Reuter said. There’s a missed opportunity for a global travel portal that curates news and information, she said. “Chinese spend hours, if not days, searching for information about where they want to go [but] no one is telling people, here’s your Chinese-language app for where you need to go shopping in Paris.”

Normandy Madden is senior VP-content development, Asia/Pacific at Thoughtful China, and Ad Age’s former Asia editor. See earlier episodes of Thoughtful China here.

Chinese investors, the new masters of New York City real estate business

Chinese banks have poured more than $1 billion into real estate loans in New York City in the past year. Investors from China are snapping up luxury apartments and planning to spend hundreds of millions of dollars on commercial and residential projects like Atlantic Yards in Brooklyn. Chinese companies have signed major leases at the Empire State Building and at 1 World Trade Center, which is the centerpiece of the rebuilding at ground zero. The Chinese investments are occurring with little fanfare, in part because Chinese executives tend to shun publicity. But back home, their government is urging them to invest overseas to diversify China’s foreign-exchange holdings, develop business partnerships and improve the country’s leverage in international affairs. Dan Fasulo, managing director of Real Capital Analytics, which tracks commercial real estate sales, was combing through his files the other day for deals in New York City that involved Chinese investments. As the list grew longer and longer, he paused, a tone of surprise in his voice. “It’s truly amazing how much they’ve been able to do without being highlighted in public,” he said.

Delegations of Chinese officials and executives have been sweeping through the city, on a nearly weekly basis, assessing the markets, searching for office locations and meeting prospective partners and clients. Last month, officials and executives from China and the United States filled a ballroom at the Waldorf-Astoria to make deals during a business conference. “Everybody wants to come to New York because New York is the starting point for going global,” said Xue Ya, president of the China Center, a business and cultural organization that was the first tenant to sign a lease at 1 World Trade Center, where it will occupy six floors. Once established in New York, Mrs. Xue said, “you are a player.” Even one of the region’s fastest growing construction companies is Chinese. The company, China Construction America, has won contracts on major public works projects, including the Tappan Zee and Alexander Hamilton Bridges, the No. 7 subway line extension and the $91 million Metro-North Railroad station at Yankee Stadium. China Construction is a subsidiary of a state-controlled construction company in China. The wave of Japanese investment in the city a generation ago — epitomized by the purchase of a controlling stake in Rockefeller Center by the Mitsubishi Estate Company of Tokyo in 1989 — stirred anxiety and even xenophobia. Some New Yorkers saw it as evidence that the city and the country were losing their dominant positions. This time, city officials are welcoming Chinese investment as a boon to the local economy. But in a report in May, the Asia Society and the Woodrow Wilson International Center for Scholars warned that on a national level, protectionist impulses and anti-China sentiment, particularly in Washington, could scare away investors. Flush with capital from its enormous trade surpluses, China has been on an investment spree, especially in developing countries. While the size of China’s investments in the United States pales in comparison with investments by other countries, it has nevertheless been growing rapidly. “In terms of overall flow from China into the U.S., many of us believe that it could accelerate very quickly, and it could even parallel what Japanese investment did in the mid-’80s,” said Clarence Kwan, a senior partner at Deloitte, a business services firm.

The Chinese government is acutely interested in diversifying its foreign exchange reserves beyond United States Treasuries. One sign of this is the push by Chinese state-run banks to invest their money in commercial real estate in New York City. In one of the largest loans by a single lender in the city since 2008, the Bank of China lent $800 million late last year to refinance a building on Park Avenue housing JPMorgan Chase and Major League Baseball, analysts said. Among other deals, the Bank of China recently agreed to lend more than $250 million to refinance an office tower at 3 Columbus Circle. Analysts, as well as American and Chinese officials, said it was hard to calculate the precise size of Chinese investment in New York, or even the number of deals with Chinese involvement, because of the complexities of international business arrangements and privacy laws. But experts said the current level of interest was only a hint of what could come.

Tourism from China is booming in New York as well, helping to sustain the hotel, restaurant and retail sectors. In 2010, 266,000 Chinese people visited the city, a 45 percent increase over 2009, according to NYC & Company, the city’s tourism arm. Pierre Gervois, president of China Elite Focus, said that “Five star hotels and luxury retail stores in Manhattan are suddenly realizing that they have no strategy to attract wealthy Chinese tourists. They turn to us to understand better this very sophisticated clientele”. High-end real estate agents are doing their best to accommodate the influx. Pamela Liebman, president of the Corcoran Group, said her firm had fielded a “huge” increase in inquiries from wealthy Chinese looking for luxury residential properties, “some in the $30-million-plus range.” “We went from zero to 200 miles per hour in six months,” she said. “This year, it’s the biggest buzz word in real estate: ‘Chinese.’ ” Xiaolan Shang, an agent with Prudential Douglas Elliman, said that five years ago, she had very few international clients. Now, about 90 percent of her client base is Chinese — and most pay in cash. “I’ve had people come to New York only for the weekend,” Ms. Shang recalled. “They see the apartment, they make the offer and right away they fly back to China.” “Cash deal,” she added. “Right away.”

Source: New York Times, article by Kirk Semple