The London department store Harrods has registered a 40 per cent rise in sales to affluent Chinese tourists in the first quarter of the year, boosted by the installation of 75 Chinese bank-card terminals.
According to the company’s analysis of VAT reclaim data, Chinese shoppers spent an average of more than £3,500 ($5,700) on a store visit in the period, a 40 per cent rise year-on-year.
Michael Ward, managing director of Harrods, said that the introduction in February of China UnionPay terminals, which allow Chinese customers to make payments directly from their domestic bank accounts, was behind the growth, and has resulted in some unusually large individual transactions.
China UnionPay terminals can deal with cards from across the country’s banking card industry. As Chinese cards are not compatible with Western chip-and-pin terminals, customers have previously had no option but to pay in cash.
"The majority of Chinese customers will spend cash, but this year we have had two separate wine sales in excess of £25,000 and one diamond sale in excess of £140,000 [where payment has been] taken through China UnionPay," he said.
Four CUP terminals have also been installed in Selfridges department store, on London’s Oxford St, where sales to Chinese shoppers have enjoyed "double digit growth" since being installed last May, according to a spokesperson. She added that sales of watches in particular had improved.
Despite the rise in Chinese spending, Mr Ward said Harrods was not yet ready to open a store in China. "We’ve still got a huge amount to learn, should we ever do it," he said, when questioned earlier this week at the Walpole "Luxury in Greater China" summit, held in central London.
However, Harrods’ store in Knightsbridge is making a concerted effort to reach out to its Chinese visitors, with 75 Mandarin-speaking staff on hand to assist the coach-loads of tourists who arrive daily.
Sales staff report that Hermès is the most sought-after brand among the Chinese, closely followed by Chanel, Louis Vuitton and Dior.
The men are drawn to watches, shoes and belts, while the women prefer handbags, shoes and designer dresses, they report. Items with a British feel are selling well – a lip-shaped Union Jack clutch bag under the Lulu Guinness brand, priced at £275, is popular at the moment.
The fact that Harrods uses China UnionPay is discreetly advertised around the store, though some customers are surprised to learn that it is accepted. According to staff, it is not unusual for young Chinese holidaymakers to ask their parents to top up their bank accounts at home, so they can return and buy more goods using CUP the following day.
The terminals tend to encourage multiple purchasing, with groups of Chinese shoppers encouraging each other to spend. "Sometimes, people will choose an item and then say, ‘I want three’, or ‘I want five’. They want to give them as gifts back home," one assistant said.
Following feedback gleaned from comments on Chinese social networking sites, Harrods’ restaurants have adapted their menus to contain dairy-free dishes, recognising that dairy products are not common in Chinese cuisine.
"We are employing people to get on Chinese social networking sites, using Mandarin keyboards, to get feedback on what we have done wrong, so we can address it," Mr Ward said.
The rival department store Harvey Nichols, also in Knightsbridge, has yet to install CUP terminals, but it opened a Hong Kong store in 2005 and is set to open a second in the city’s Pacific Place shopping mall in October. Chief executive Joseph Wan said the decision to expand in Hong Kong, rather than open a store on the Chinese mainland, was made "because we are running this business for profit".
Noting that brands including Burberry and Gucci are expanding rapidly by opening stores in Chinese cities, Mr Wan said: "Their business model [means] they will earn a manufacturing margin, a wholesale margin and a retail margin. As a multi-brand retailer, what we are earning is the retail margin. And we are a big-box retailer, so the overheads are significant."
UK-listed Burberry has seen its shares rise 34 per cent since it bought out its Chinese franchise partner in a £70m deal last September, bringing 50 stores under direct control. The company estimates the conversion of wholesale-to-retail sales will add £20m to annual operating profits, when it reports full-year results next Thursday.
Research house McKinsey reports that two-thirds of luxury consumers on the Chinese mainland travel overseas to make purchases and so avoid China’s high sales taxes. But, while recognising the growing popularity of London as a shopping destination, Mr Wan argued that Hong Kong is "still the first port of call" for China’s growing numbers of luxury consumers.