CHINA. The closure of the CDF Mall in Haitang Bay yesterday (26 January) underlines the gravitas of the coronavirus outbreak for the global duty free industry, writes The Moodie Davitt Report Senior Editor Liam Coleman.

In 2018 (the most recent full year with available figures for both), duty free sales reached CNY10.08 billion (US$1.45 billion) on Hainan Island – predominantly in the CDF Mall. This represented 1.84% of the US$78.96 billion spent globally in duty free that year, according to Generation Research.

CDFG announces the store closure

That percentage will have risen markedly last year. An increase in the offshore duty free allowance from CNY16,000 (US$2,300) to CNY30,000 (US$4,314) at the end of 2018 sparked a +35% year-on-year surge in duty free sales on the island to CNY13.61 billion (US$1.98 billion) in 2019.

Understandably, analysts and travel retail executives are drawing worrying comparisons between ‘Wuhan coronavirus’ and the SARS outbreak of 2003. And while it is premature to speculate on an equally negative (or worse) impact on travel retail, it’s worth noting that total Chinese passenger numbers (domestic and international) have increased six-fold since 2003. Quite simply, both the global aviation and travel retail sectors are much more reliant on Chinese travel than they were 17 years ago, the latter underscored by the CDF Mall’s share of global duty free sales.

Total air traffic in China increased from 87.6 million in 2003 during SARS to 611.7 million in 2018; Source: National Bureau of Statistics China

Travel-related stocks, across the brand, retailer, airport and airline sectors, continue to react to the deepening crisis.

At 4pm (GMT), The Estée Lauder Companies were down -5.44% for the day on the New York Stock Exchange to US$194.16; while its arch-rival L’Oréal was off -4.55% at €258.2. In South Korea, Amorepacific, heavily dependent on duty free sales to Chinese travellers and daigou resellers, finished the day down -4.92% at KRW212,500, while The History of Whoo owner, fellow Korean beauty house LG Household & Health Care, slipped -1.39% to KRW 1,349,000.

Here is a snapshot of other travel retail-affected stocks (day-on-day movements as of 4pm GMT on 27 January):

  • Dufry: -3.31%
  • Lagardère: -5.4%
  • LVMH: -3.56%
  • Kering: -3.91%
  • Richemont: -2.91%
  • Shiseido: -5.49%

Day-on-day share price movement for tracked companies (as of 4pm GMT on 27 January); Click to enlarge

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