With air travel severely disrupted, all airport operators have reported sharp decreases in passenger volume and revenues. Duty-free shops around the world, too, have taken a beating. Dufry, the world’s largest duty-free retailer, saw its turnover slump in the first half of 2020 by 62% year-on-year to $1.7 billion.
Tourism activities in Hainan, however, have been busier than ever. The four duty-free stores in the island province received as many as 740,000 customers between July 1 and August 18 – that is 70% more than in the same period a year ago. In fact, ThePaper.cn said the quartet has just set a global record for the sector with Rmb5 billion ($730.8 million) of sales in 49 days. Combined, they sold 4.6 million items from fragrances to cosmetics to luxury watches and bags, 150% more than a year ago.
Since early July, the Hainan government has been aggressively courting domestic shoppers and visitors from other provinces. The island has raised the tax-free spending limit to Rmb100,000 per person each year from Rmb30,000, for instance, and widened the range of eligible goods.
Visitors who have left Hainan can still enjoy the discounts of duty-free shopping for three months after their departure when they shop on the stores’ websites (as long as they are within their yearly purchase quota).
It also helps that the island province recorded just 168 confirmed cases during the Covid-19 outbreak, making it a more popular destination for those who wanted to travel after inter-provincial tours were resumed after May.
Luxury brands have become the biggest winners. Long queues formed outside the top brand shops like Gucci and Chanel. Some even compared Hainan’s duty-free shops’ footfall to crowds at a “wet market”. The main attraction is the prices. Beauty products are at least 15% cheaper than at bricks-and-mortar retailers elsewhere. Even Apple’s iPhone is cheaper in Hainan. The iPhone 11 Pro 512G is sold for 20% less than the standard selling price across the rest of China.
“Hainan’s new tax exemption policy feels very attractive. Without having to travel abroad we can just go to Hainan and buy, buy, buy,” one excited shopper told 21CN Business Herald.
The rise of Hainan as a duty-free shopping destination has also enticed professional shoppers, known as daigou in Chinese, to stay closer to home. They typically buy goods overseas and ship them back to China to clients who want to evade import duties.
“In the past, I used to buy low-fare air tickets and fly back and forth to Japan. I do the shopping and then send everything back to China, making money from the arbitrage. But this year has been difficult: it is unrealistic to have to quarantine for 14 days every time I travel,” one professional shopper told 21CN. “So to maintain our customer base, Hainan duty free shops have become the top choice for us agents.”
The revamp in Hainan’s retail sector is part of the broader strategy of transforming the resort island into a regional shopping hub – making it a competitor to Hong Kong, which is free of sales taxes and levies on most luxury goods. It also coincides with the central government’s policy to boost domestic consumption to counter the economic challenges from the pandemic.
Competitors outside of Hainan also wanted to tap the sales potential. Sunrise Duty Free, another shop operator, has been offering promotions to travellers to shop online. They only needed to present proof of travel in the past 18 months and passport information.
China Duty Free Group (CDFG), which has an 85% share in China’s duty-free market, has also increased its online promotions. The state-owned enterprise’s e-commerce business has thrived as a result, delivering a net profit of Rmb1 billion in the second quarter, up from a net loss of Rmb120 million in the first quarter. Investors have taken heed. The share price of CDFG has gone up 260% in the last 6 months.
Even Wangfujing, an aging department store chain, saw its share price jump 500% after it announced in July that it was setting up a fully-owned subsidiary to operate in the duty-free sector…
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