CHINA. Offshore duty free sales on Hainan island surged to RMB25 billion (US$3.82 billion) for the year to 14 December, according to official figures released to The Moodie Davitt Report by Invest Hainan, the official WeChat account of Hainan Provincial Bureau of International Economic Development (Hainan IEDB).

Tax paid sales for the period doubled to RMB5 billion (US$763.7 million).

Sales have rocketed since the implementation of the new offshore duty free shopping policy on 1 July, a far-sighted programme designed to stimulate Hainan’s economy and maximise Chinese travel consumption at home rather than abroad, Hainan IEDB Global Media Officer Ruslan Tulenov said, noting the “outstanding results”.

That enhanced policy saw the advent of several pro-travel retail sector initiatives:

  • The annual offshore shopping quota was increased from RMB30,000 (US$4,215) to RMB100,000 (US$14,050).
  • The number of categories was increased from 38 to 45, including spirits & wine
  • The number of cosmetics skus able to be purchased was raised to 30 from the previous 12
  • The limit of RMB8,000 (US$1,129) for a single purchase was removed

Since the new policy was adopted, average daily sales, led by the stellar performance of China Duty Free Group, have exceeded RMB120 million (US$18.3 million), IEDB reported, a year-on-year increase of more than two and a half times.

“The implementation of the new policy has effectively offset the adverse effects of the epidemic,” IEDB said.

Despite the number of visitors to Hainan having fallen by -20% year-on-year, the RMB30 billion sales target set by the Hainan Provincial Party Committee and the Provincial Government at the beginning of the year was reached 17 days in advance.

Total annual sales are expected to reach about CNY31.5 billion (US$ 4.8 billion), of which offshore duty free will represent around CNY26 billion (US$3.97 billion). That is an astonishing result in a year that has seen the global travel retail market devastated by the COVID-19 pandemic, and the Chinese and Hainanese business itself stricken in the early months of the year.

Beauty product sales are booming in Hainan. Estée Lauder and China Duty Free Group are this month celebrating the new Advanced Night Repair Synchronized Multi-Recovery Complex with a pop-up at the Sanya International Duty Free Complex in Hainan. Chinese Actress and Estée Lauder Global Spokesmodel Yang Mi graced the official opening.

The latest figures represent triumphant justification for the implementation of the far-sighted offshore duty free shopping policy in 2011. It took seven years (end-2018) for the market to generate duty free sales of CNY10 billion (US$1.53 billion at today’s exchange rates) but just two more to race past the CNY20 billion (US$3.1 billion) mark.

Hainan IEDB noted the rich array of brands that now populate Hainan’s travel retail landscape. Since the beginning of this year, for example, Haikou Riyue Square Duty Free Shop has opened a wide array of high-end brands such as Bvlgari, Omega, Tiffany, Prada, and Chow Tai Fook, it said.

Sanya International Duty Free City (China Duty Free Group) has renovated Gucci, Cartier and other brand stores, and introduced Vacheron Constantin, Mingshi, Canada Goose, Moschino and others. Meanwhile, Haikou Meilan International Airport has launched numerous high-end watch brands such as Chopin, IWC and Jaeger-LeCoultre.

In addition, China Duty Free Group (CDFG) has led the introduction of top international spirits and wines brands, including Martell, Hennessy, Rémy Martin, Chivas Regal, since the 1 July policy was adjusted to include alcohol.

“The above measures have enhanced the image of Hainan’s duty free shops and provided shopping travellers with more choices,” Hainan IEDB said.

[[Click on the icon to hear livestreaming superstar Viya promote the China International Consumer Products Expo, organised by Hainan IEDB, from 7 to 10 May 2021 on Hainan island]

The product category mix has also improved thanks to the new policy and the easing of previous volume and value limits. The ability to sell more higher-value items has resulted in rapid sales growth for the watches, jewellery, fashion and accessories, with beauty product sales (though still growing in absolute terms) dropping in share from 75% of the total mix to around 50%.

Another characteristic of the market in 2020 has been the acceleration of online to offline (o2o) integration. In 2019, online revenues represented a mere CNY1 billion (US$153 million) out of total sales of CNY14.4 billion (US$2.2 billion).

This year, CDFG has embraced changes in new media marketing, increased its online mall marketing, held regular livestreaming events, and optimised its membership marketing programme. Online sales have grown fivefold to around CNY5 billion (US$764 million).

The enhanced offshore duty free shopping policy saw the addition of wines and spirits to the retail categories. China Duty Free Group and Hennessy quickly responded to partner in this elegant boutique in Haitang Bay.

CDFG has also led an impressive improvement in consumer marketing. Since the beginning of the year, China’s leading travel retailer (and world number one for the first nine months of 2020) has introduced several innovative promotional methods, uniting communication across 16 airlines, five major OTAs, ten major travel agencies, and over 50 mainstream media and brand linkages to promote offshore duty free and its various shopping opportunities.

Campaigns to promote the Hainan shopping opportunity were held in Chongqing, Chengdu, Xi’an, Changsha, Nanchang and other Mainland cities, attracting the attention of a large number of potential customers.

CDFG also hosted the world-class Watches & Wonders Sanya event with Richemont and Fondation de La Haute Horlogerie (FHH) from 29 September to 31 October, drawing the participation of 11 leading 11 Haute Horlogerie brands and a stellar line-up of celebrities, including Lei Jiayin, Yang Mi, Li Xian, Song Zuer, Huang Shengyi, Dong Xuan and other stars to promote the sales of high-end products and increase the visibility of offshore duty free.

China Duty Free Group hosted the world-class Watches & Wonders Sanya event with Richemont and Fondation de La Haute Horlogerie from 29 September to 31 October

The quality of services is improving day by day, the Bureau noted. CDFG has expanded its business premises and the number of delivery point windows; increased the number of customer service staff; and strengthened personnel training to meet the needs of tourists.

Improved customer flow has been achieved through an increase in cashier counters and rapid check-out channels, and the introduction of mobile cashier technology to ease crowding. Under normal circumstances, shoppers can complete their pick-up within two minutes, while queuing time for pick-up during peak passenger flow does not exceed 20 minutes.

Strict policing has been implemented to restrict excessive reseller activity, “to consciously resist tax free shopping violations, and create a good shopping environment and public opinion atmosphere”, Hainan IEDB said.

Hainan Province Anti-Piracy Office and Haikou Customs have adopted face recognition, big data risk control, credit record management and other technical means to police controls over smuggling. “Efficient and precise strikes” against smuggling groups have helped ensure the smooth operation of the new offshore shopping policy, the Bureau said.

Hainan is a “holiday paradise” for the people of the whole country, Hainan IEDB said. “It is building an international tourism shopping and consumption center.”

Hainan’s Free Trade Port development, driven by Hainan IEDB, is one of China’s and Asia’s most ambitious economic, infrastructure and tourism developments

In the next phase of development, Hainan Province will focus on a series of key tasks. These include the introduction of new retailers across the island to encourage “orderly and moderate” competition.

Further measures to stimulate tourist shopping will see the Hainan Provincial Department of Commerce launch a special duty free employment fair with the Hainan Provincial Department of Education. The Department of Human Resources and Social Security will reward the ‘most beautiful tax free shopping guide’; help travel retailers to improve their services; and jointly build an integrated service brand for Hainan’s offshore duty free shopping sector.

Hainan IEDB plans a flurry of activity before 2025 (when the whole island becomes tax free), including the construction of a number of pedestrian streets, commercial complexes, and business districts.

It will encourage several international retail giants to settle in Hainan, and attract an array of high-end brands to set up exclusive flagship and experience stores on the island. It will also host new product launches and debut events in order to enhance Hainan’s influence and voice in the global consumer sector.

By 1 January 2025 Hainan will become a fully flegded special customs administration zone, “a duty free paradise island”, Hainan IEDB told The Moodie Davitt Report.

Destination Hainan: The IEDB and Hainan authorities are seeking the support of brands across multiple sectors for their landmark May event

Hainan Island: Travel retail’s global hotspot

The Moodie Davitt Report will publish a Hainan Island Special Report with the China edition of The Magazine in February 2021. Written by Martin Moodie and Dermot Davitt, it will explore how the offshore duty free business in China has become critical to the world’s leading brands across many categories.

The report will feature:

  • Comment & analysis on the seismic impact of the new offshore duty free policy in Hainan since 1 July
  • The potential of new offshore duty free allowances across categories from beauty to fashion and watches and from wines & spirits to consumer electronics
  • Major interviews with and profiles of China Duty Free Group, CNSC, Hailvtou Sanya Downtown, Hainan Provincial Bureau of International Economic Development and others, with a special focus on the ambitious Hainan Free Trade Port project
  • Beyond Hainan, we examine the rebound in the China domestic market, assess prospects for Chinese airports and hopes for an eventual return to international travel. With input from leading travel retailers in the Mainland, Macau and Hong Kong markets
  • The ecommerce drive: Assessing the potential of the partnership between travel retail’s long-time market leader Dufry and the digital powerhouse Alibaba; plus digital strategies at CDFG and other major players
  • With contributions from our content partners Globuy, iClick, Jessica’s Secret and DutyFree Expert on trends among Chinese consumers and the duty free market

Contact Irene@MoodieDavittReport.com to partner with The Moodie Davitt Report for this special edition.