CHINA. Hainan Tourism Investment Duty Free Corporation (HTDF), operator of the succesful Hainan Tourism Duty Free Shopping Complex, is to open a new duty paid ‘Supermall’ in Sanya on 10 December after a thorough evaluation of the company’s value-led model.
HTDF said it began exploring possible business models for HTDF Supermall in early 2023.
Based on their understanding of the Sanya market, insights into China’s domestic market and in-depth consideration about online and offline retail, the management team traded the conventional ideas of building a shopping mall or outlet mall, instead opting for what HTDF called the country’s first “new travel retail complex”.
Behind this new positioning is a new business model. This article examines through HTDF’s eyes, the Supermall’s business model from a variety of aspects: DNA, values, logic and model.
DNA: Duty free shopping
To understand HTDF Supermall’s business model, first it is necessary to understand HTDF.
Since obtaining its offshore duty free operation license in 2020, HTDF has achieved cumulative sales of more than CNY10 billion (US$1.4 billion) in the past three-plus years, making it China’s second-largest duty free retailer.
According to a July 2023 China News Service report, from 1 July 2020 to 30 June 2023, Hainan recorded CNY130.7 billion (US$18.4 billion) in offshore duty free sales; served 17.67 million duty free shoppers and sold 175 million duty free items, up by +279%, +92.6% and +272%, respectively, over the whole period.
The report said these increases were driven largely by the introduction of new offshore duty free policies over recent times.
As a witness and a major participant in these three years of success, HTDF has gained profound experience of the role the duty free sector plays in driving the consumer market. This insight means that HTDF Supermall was imbued with a distinct duty free DNA since its birth.
Value: Providing quality products at a reasonable price
The essence of duty free is travel retail, i.e. providing high-quality products at a reasonable price. And that’s the value that HTDF Supermall holds at its core.
The team’s starting point for building HTDF Supermall is not the maximisation of profit, but creating a one-stop shopping destination based on consumer demand.
This will provide a place where tourists and local residents can shop conveniently with peace of mind, confident that they’ll find authentic products at a good price here.
At a time when general consumption upgrading is giving way to consumption segmentation, and consumers are becoming more rational and pragmatic in their spending, it is a value that aligns with the current market trends.
Logic: Achieving economies of scale with cost reduction and higher efficiency
So how to realise this value in reality? The solution HTDF Supermall came up with is to reduce costs and boost efficiency in order to achieve economies of scale.
Cost reduction is to improve the price competitiveness of goods (to a point where the prices are even lower than those on ecommerce platforms) by lowering costs.
Generally speaking, the price of a product is determined by a host of factors including production costs, marketing/sales expenses, labour expenses, management expenses and rental expenses.
By primarily relying on a self-service format, HTDF Supermall is able to reduce the brand’s labour, management, rental and other costs, and thus increase price competitiveness.
On the other hand, efficiency improvements can be gained in at least two key areas: enhancing management efficiency by refining the operational process, and increasing the shopping efficiency of consumers.
Through management efficiency derived by leveraging HTDF’s strong supply, HTDF Supermall will continuously optimise all aspects of the operation. These range from product selection, procurement and display, to marketing and sales, thereby increasing the circulation speed of goods and further reducing costs.
With shopping efficiency, HTDF Supermall is introducing digital, smart systems to complement its self-service format. This will allow customers to locate products, place orders and receive electronic invoices all by scanning QR codes with their smartphone, enjoying an elevated shopping experience.
To ultimately achieve economies of scale, HTDF Supermall helps brands set up stores conveniently and cost-effectively through its cost-reduction and efficiency-improving measures. It will attract consumers through the combination of the large number of brands available and remarkable discounts. This creates a positive cycle that drives continuous sales growth.
It is worth noting that, thanks to its supply chain advantages and a flexible operation model consisting of both self-operation and joint-operation modes, the number of brands represented at HTDF Supermall is considerably larger than that of a conventional shopping mall.
As of now, HTDF Supermall has over 1,500 brands, ranging across almost all categories including cosmetics, fragrances, jewellery and watches, luxury goods, fashion, toys, imported foods and lifestyle.
Model: Seamless integration of online and offline
Online-offline integration is a key proposition and trend in commercial real estate. Traditionally, department stores and shopping malls interested in online retail focus their efforts on selling a portion of their products on mini-programs or hosting occasional livestreaming events. Judging from their scale and results, these online efforts are severed from offline stores and delegated to play a supporting role.
What differentiates HTDF Supermall is that here, products available online and in store are completely in sync, with a shared inventory. In other words, it is not only a shopping mall where you can browse and buy, but also a modern warehouse with a clear categorising system and huge quantities of products. It also offers an ecommerce platform boasting a large range of SKUs and significant price advantages.
HTDF Supermall is also making livestreaming a permanent fixture of its operation, achieving the ‘Holy Trinity’ of wholesale, retail and livestreaming.
With the seamless integration of online and office, as well as the large number of brands and attractive prices, HTDF Supermall is on its way to becoming a new ‘super-species’ in the retail landscape
Harvard Business School professor Clayton Christensen, known for his theory on innovation, famously opined that most innovations taking place in industries are “sustaining innovations”, while only a few qualify as “disruptive innovations”. But it is disruptive innovation that has the power to transform industries.
The business model as exemplified by HTDF Supermall may just serve as the starting point of a new market and industry transformation. ✈
