Drop in Chinese tourists to affect luxury retail market

The retail market would be severely impacted if the coronavirus spread prolongs and goods from China failed to be delivered to buyers


RISING worries over the coronavirus outbreak, travel cancellations and reduced flights to China would hit the local luxury goods outlets as the sector has been one of the main beneficiaries of the free-spending and rich Chinese customers.

Buyers from China, famed globally for their high-end shopping sprees, are cancelling their overseas trips as the deadly coronavirus continues to spread without a vaccine in sight.

Although many countries are already blocking the movement of Chinese nationals to their country, Malaysia has only imposed travel restrictions for those from the Hubei province, the ground-zero of the outbreak.

Malaysia Retail Chain Association VP Datuk Liew Bin said the Malaysian retail market is likely to feel the impact of coronavirus soon, although it is still too early to fully assess the situation as the official tourist arrival figures have yet to be released by Tourism Malaysia.

“But it is obvious that the direct impact will be contributed by Chinese tourist arrivals, as the government has banned some of them from entering Malaysia.

“They are the biggest spenders in our country, with many of them always hunting for luxury brands such as Louis Vuitton, Coach, Gucci, etc. So, the impact will definitely be there, but it won’t be severe,” he told The Malaysian Reserve (TMR) in a phone interview.

From January to September 2019, Chinese tourist receipts jumped 29% to RM12.8 billion from RM9.9 billion recorded in the same period a year earlier based on figures from Tourism Malaysia.

China was also the second-largest contributor to total tourist expenditure for the period, which came in at RM66.14 billion compared to RM61.85 billion in 2018. The expenses are largely for shopping, especially at high-end malls like Suria KLCC and the Bukit Bintang areas which house some of the world’s most luxurious brands.

Liew, however, said the retail market would also be severely impacted if the coronavirus spread prolongs and goods from China failed to be delivered to buyers.

He said over the last few years, many Chinese tourists had chosen Europe and the UK to purchase most of their luxury goods.

“This is because the prices there are at least 20% or 30% cheaper compared to Malaysia. These days, you can also find luxury goods online at better prices. So we are currently seeing a decrease in Chinese tourists coming to Malaysia solely for luxury goods,” he said.

Fundsupermart research analyst Jerry Lee is confident that the impact from the coronavirus outbreak would be minimal on the retail market, particularly the luxury segment.

“There is a possibility of a sudden drop in sales. But we don’t expect the outbreak to be significant and prolonged since at this stage, we are not seeing our government taking any drastic move to stop Chinese tourists from travelling to Malaysia.

“With the virus outbreak, certainly, we will be seeing decreasing Chinese tourist arrivals due to health concerns. However, if history is any guide, the impact of such a virus or disease is rather short-lived,” he told TMR.

According to international consulting firm Bain & Co, Chinese consumers account for 35% of global luxury goods sales, with most of the purchases made during trips outside China.

Their global spending on personal luxury goods and high-end fashion, such as watches, handbags, jewellery and apparel, hit an estimated US$310 billion (RM1.3 trillion) in 2019.

The coronavirus, which causes pneumonia, was first reported in Wuhan on Dec 31, 2019. Over 300 people have died and more than 14,000 infections have been reported globally, as at press time.

In Malaysia, the number of confirmed infections remains at eight (at press time), with all cases involving Chinese nationals.

The timing of the outbreak is particularly challenging given the peak travelling and shopping season for Chinese New Year on Jan 25.

Experts are already warning of the ill-effects of the coronavirus, given its similarities to SARS, which broke out in China in 2003, became an international health crisis and set back economies and financial markets worldwide.