Local luxury market faces challenges despite IVS expansion

Macau’s luxury market is experiencing a significant downturn, even as China’s Individual Visit Scheme (IVS) expands.

Once a catalyst for high-end tourism, the IVS is now struggling to maintain its previous momentum in the rapidly changing consumer landscape.

The IVS, introduced in 2003, allowed affluent mainland Chinese tourists to visit Macau frequently, indulging in its casinos, luxury retail outlets and fine dining.

However, according to industry observers cited by Asia Gaming Brief, the benefits of this scheme are diminishing due to shifts in the economic environment in China.

Consumers are increasingly gravitating toward more affordable luxury options and local brands.

Johnson Ian, president of the Synergy of Macau political party, emphasized the urgency for businesses catering to high-end consumers to adapt to the decline in luxury spending.

“They have no choice but to adapt,” he said, highlighting the sluggish sales at luxury T Galleria stores within Macau’s integrated resorts.

This downturn has led to salary cuts and unpaid leave for frontline staff.

In July, Chinese visitors were permitted to spend up to RMB15,000 ($2,064) in duty-free shopping across both Hong Kong and Macau, nearly doubling the previous limit.

This policy aims to stimulate economic recovery in the two Special Administrative Regions post-pandemic.

However, Ian remains doubtful about its long-term effectiveness.

“While easing the IVS restrictions will help to some degree, it won’t have a significant impact,” he said.

“As China’s economy faces downward pressure and declining incomes, consumer spending is bound to shrink.”

Ian also pointed to rising competition from regions like Hainan, which is quickly becoming a luxury shopping hub due to its tax-free policies.

“By 2025, Hainan will become a zero-tariff zone, posing stiff competition for Macau and Hong Kong’s high-end retail markets,” he noted.

“Mainland Chinese consumers no longer need to wait months to shop in Macau; they can easily visit Hainan or even Europe, where prices may be more favorable.”

Declining Consumer Spending and Business Adjustments

The enthusiasm for spending in Macau is waning, as evidenced by statistical data and retail trends.

Ian noted average tourist spending has dropped significantly since the pandemic.

“Before the pandemic, in 2019, spending was lower than during the pandemic when Macau was the only ‘foreign’ destination available to mainland visitors. Now, that high spending has dropped, impacting multiple sectors.”

In a stark illustration of these challenges, luxury retailer DFS Group laid off approximately 80 frontline sales employees in late August, marking its first significant workforce reduction since entering the Macau market in 2008.

DFS attributed this decision to the rapid changes in Macau’s luxury retail landscape, resulting in a 5% workforce cut.

The company reported a nearly 40% revenue drop compared to both last year and pre-pandemic levels.

In June, DFS began trimming expenses due to the revenue slump, cutting salaries of frontline employees by nearly 50%.

The cosmetics segment has been particularly hard-hit, with sales plummeting since the latter half of the previous year.

Macau’s luxury market is also contending with increased competition from destinations like Europe and Hainan, which have eased visa requirements for Chinese nationals.

Additionally, the government’s crackdown on VIP gaming and the decline of junket operators has shifted visitor preferences toward shorter, more affordable stays and experience-focused activities.

Billy Song, president of the Macau Responsible Gaming Association, believes Macau must enhance its marketing strategies to attract affluent tourists beyond mainland China and reduce its reliance on the IVS.

Nadia Shaw