More Chinese Consumers Are Shopping Local — Why This Is Bad News for the US Luxury Market

Every year, international travelers contribute billions of dollars to the American economy — but the United States’ escalating trade war with China is swiftly changing the face of tourism in the U.S.

The National Travel and Tourism Office reported that travel from China to the U.S. dropped 5.7% to 2.9 million visitors last year — marking the first decline since 2003. The slowdown has already impacted industries from manufacturing to tech, but the luxury market is also expected to take a hit as tensions persist between the world’s two largest economies.

According to a new study from management consulting firm Bain & Co., Chinese consumers continue to make up more than 45% of the luxury sector’s sales across the globe, largely contributing to a 4% to 6% expansion (or $305.6 to $311.3 billion) in this year’s sales of high-end accessories, apparel and cosmetics.

However, their shopping habits have already begun to shift. A greater number of Chinese consumers are opting to use their earnings on local buys instead of going abroad, with half of their luxury purchases happening in mainland China as the country supports more domestic spending through VAT and import tariff cuts.

“China continues to dominate the luxury scene,” said Claudia D’Arpizio, a Bain partner and lead author of the study. “Elsewhere, we are continuing to see geopolitical uncertainty shape and reshape tourism spending patterns, with Chinese consumers choosing to spend domestically with more frequency.”

The researchers also found that Chinese Generation Z consumers are quickly emerging as the top segment to watch. With significant spending power and the tendency to make impulse buys, the demographic — combined with Gen Yers — is forecasted to deliver 130% of market growth in the luxury industry come 2025.

“Under the surface of this new normal, the future of luxury is taking shape with a number of key characteristics,” D’Arpizio added, “including Chinese Generation Z; access, ownership, sustainability and social responsibility; the impact of digital across the entire value chain; preference for luxury experiences over products; and consumer networks as a new measure of value.”

Meanwhile, U.S. consumers are already pulling spending away from footwear and apparel retail as they opt for experiential buys, and some find themselves with less discretionary dollars thanks to new tax policies and subsequently lower income tax rebates. But there’s a silver lining: The report predicted a 2% to 4% gain in luxury sales in 2019, with a promising rise in domestic consumption of full-price stores despite a cutback in Chinese tourism.

As the luxury market readies itself for the next generation of consumers, retailers will have to adapt to a dynamic set of shoppers who increasingly value social responsibility, circular fashion and strong brand messaging.

“It’s important to highlight the role that insurgent brands will play in the luxury sector,” said Federica Levato, a Bain partner who co-authored the study. “They will challenge established brands, pushing for a real paradigm shift with a more creative approach that goes beyond the product itself and impacts all facets of business, ultimately creating a more direct and continuous dialogue with consumers.”

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