CHINA. A powerful line-up of speakers from the Hainan offshore duty free market outlined their progress and vision for the channel during the TFWA Asia Pacific Hainan Special Edition conference today.

They included Hainan International Economic Development Bureau (IEDB) Director Han Shengjian, Shenzhen Duty Free Group Chairman You Jiangwei, Hainan Tourism Investment Duty Free Chairman and General Manager Xie Zhiyong, CNSC Sanya Duty Free Co Ltd. Chief Operations Officer Ken Zhu and Zhuhai Duty Free Group General Manager Chen Hui. Also addressing the event with research on the Hainan shopper were m1ndset Founder and President Dr. Peter Mohn and Travel Retail Research Director Clara Susset.

IEDB Director Han Shengjian: “By 2050 Hainan FTP will be one of the most developed Free Trade Ports in the world”

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Hainan IEDB Director Han Shengjian spoke on behalf of the group responsible for developing Hainan Free Trade Port’s commercial potential. He explained the background to the Free Trade Port (FTP) concept and assessed the potential for luxury goods in the channel.

“With China opening up, the government decided to build Hainan’s position in this new era. On 10 June the government passed the law of Hainan FTP, allowing Hainan to become the most open place in the world for taxes and other aspects of FTPs.

“We have an ambition to build Hainan into [a place with] the highest degree of openness in the world. By 2025 the island will be fully duty free with all goods duty-exempted.

“In 2035 the island will have free and convenient trade investment, capital flow, investment and with a free orderly transfer of data. By 2050 Hainan FTP will be one of the most developed Free Trade Ports in the world.”

The medium and long term plan for Hainan FTP, as laid out by IEDB, with a vision to capture some of the Chinese consumption that would normally go overseas

He noted the surging growth in the business, buoyed by the expanded duty free allowances since 1 July 2020. “We are seeing even quicker growth in the first half of this year, helped by more domestic tourism. We expect this to grow more in the future.

“Every year Chinese people spend RMB1 trillion outside China. If 10% of this overseas consumption returns to Hainan, each year that means RMB100 billion (US$15.4 billion) in duty free sales, which offers big opportunities for all participants.”

Han added: “Hainan is an attractive place with low tax rates, but is also a platform for Chinese companies to go global. If they invest overseas, and bring money back to Hainan, then these revenues are tax-exempt.”

He noted the ease of doing business in Hainan both for foreign and domestic companies, with few restrictions on doing business and with Hainan set to become a major aviation hub with liberalisation of the market.

Han hailed the success of the China International Consumer Products Expo (7-10 May), which offered an “ideal gateway for foreign brands to reach the 1.4 billion Chinese population”. He said that more than 80% of partners had said they would participate in the second Expo, planned for next year.

Commenting on plans for residents’ duty free to be introduced in Hainan, he said details were still being worked out on how to control the business but said the policy arrangements would be announced “very soon”.

Shenzhen Duty Free Group Chairman You Jiangwei: “We are confident we can build a unique duty free destination”

Shenzhen Duty Free Group Chairman You Jiangwei noted that the travel retailer “is one of the pioneers of Chinese duty free”, having opened its first shop in January 1980 on the border between Hong Kong and China.

“With the support of government, we have expanded our business across channels and locations. We cherish the opportunity to be present in Hainan, and aim to build a world class location in strategic partnership with DFS [where the partners opened at the Haikou Mission Hills resort in January – Ed]. Our offshore duty free product is not a mall, it is a small town. It has 14 separate buildings, and around 100,000sq m, enough space for brands to build their flagship stores. That’s why we are confident we can build a unique duty free destination.”

You added: “Phase One opened on 31 January, with a short preparation time of just two months. The highlight is expressed with the theme of ‘World in a Day’ by DFS, showing our determination to pursue delicacy and quality.”

The first phase of the Haikou Missions Hills complex opened in January, with a zone for wines & spirits coming soon, and many branded boutiques to open by Q4. Pictured is the beauty hall, the largest across the DFS network.

On forthcoming openings, he added: “The permanent brand shops will open in the fourth quarter this year, and we have high expectations.

“Flagship stores for the big brands in wines & spirits will come soon on the first floor of block five. On the second floor will be a comprehensive offer of wines, brandies and whiskies, Japanese rice wine and so on. It will demonstrate our strength in the wines & spirits business.”

In conversation with moderator, TFWA Managing Director John Rimmer, You also said that he was confident that Hainan would become a destination for overseas as well as domestic visitors in future.

“Hainan will also become an international tourist island. Chinese government policies will help the industry, the geographic location of the island means that Hainan is central to east and southeast Asia, and very convenient. And there is great business potential for the island. It is not developed, it is developing. I am very optimistic. Hainan is gathering the domestic and international duty free giants and the prospects are boundless.”

On wider market development in China, You noted: “The arrival of the post-epidemic era will promote the development of aviation, leading to a return of travel retail in 2022. The reopening of Customs checkpoints between Hong Kong and Shenzhen is expected quite soon.

“At Shenzhen Duty Free we aim to build a unique downtown duty free shop in the future and we are open to cooperation with partners both domestic and abroad.” On this project, You said: “We were inspired by documents released by central government last year. The timing will depend on future policy by central government.”

Hainan Tourism Investment Duty Free Chairman and General Manager Xie Zhiyong: Aiming to differentiate and diversify the brand offer

Representing Hainan Tourism Investment Duty Free (which operates Hainan Tourism Duty Free Shopping Complex), Chairman and General Manager Xie Zhiyong outlined the development of the business and plans ahead.

He said that sales since opening had reached RMB1.1 billion (US$170 million) with around 51% from P&C, followed by electronics, watches & jewellery, clothing, alcohol and other categories. The target for this year is to hit RMB7 billion (US$1 billion), he said.

Most customers are from the three key north-eastern provinces of China. By city, they hail predominantly from Beijing, Guangzhou and Chengdu, he added.

Ambitious target: Xie outlined performance to date and the RMB7 billion sales that Hainan Tourism Investment Duty Free is aiming for in 2021; click to enlarge

Xie said: “From the start we focused on attracting many different brands to our mall. Most brands have completed their interior design. By year end we expect to have around 95% open. Our positioning is to be different. We will introduce the popular brands but also more alternative brands.”

Outlining the attractions of the location, Xie added: “Our mall is well located in the central business district close to tourism sites, so in early 2021 we focused on completing our structure and management systems. We are present across all social media platforms, we have our own app, We Chat Mini Apps, a JD shop-in-shop, and Alipay, TikTok, Weibo and other channels.”

On project development, Xie said: “In the first half we focused on attracting brands. In the second half we will be expanding our customer base to achieve our goal. We will expand our mall alongside other projects as we grow. As a state-owned company we aim to support the growth of the FTP policy.

“We will try to diversify our brand offer to become a popular shopping mall for our customers, and to attract talents to make our mall a more attractive destination.”

CNSC Sanya Duty Free Co Ltd. Chief Operations Officer Ken Zhu discussed the ambitious Sanya International Duty Free Plaza project under the themes, ‘New Hainan,’, ‘New CNSC’ and ‘New Sanya’.

Ken Zhu: Business at CNSC in Sanya has been boosted by recent big brand partnerships

“The offshore duty free policy has stimulated a shopping rebound and stimulated the return of sales from overseas. The policy has proved a big success over the past ten years and Hainan is now a province of competitiveness and cultural influence. It’s a major destination where Chinese consumers buy luxury goods and we have every reason to be confident.”

A snapshot of business over the past decade in Hainan courtesy of CNSC. Below, CNSC expansion in 2020 and 2021 and (bottom) the O2O strategy CNSC has adopted to drive conversion

He spoke about CNSC’s proud history as part of Sinopharm, noting that it now runs almost 30 stores across 20 Chinese provinces.

“We have been expanding our city-side stores to new places. We opened in the past year in Beijing, Chongqing, Qingdao and Sanya. Today at CNSC new projects take up 62% of our operations.”

Zhu highlighted particular growth in healthcare products and in household and personal care items in the company’s duty free stores.

On expansion in Hainan, he profiled the high end customer base that visits CNSC Sanya International Duty Free Plaza, hailing the location’s easy access and convenience for visitors. Zhu noted that the brand line-up had expanded from 220 to 309 since opening in December, with the number of SKUs rising from 8,000 to 15,000.

“Brand partnerships have been increasing with recent big openings from Estée Lauder, L’Oréal Group and Breitling. We signed a memorandum of understanding with Richemont company TimeVallée to open a watches boutique and are in negotiations with other leading brands.”

CNSC displayed images of its wider vision for Sanya International Duty Free Plaza

Zhu also revealed how the mall would look in later phases, as it invests RMB1 billion in expansion. “We are creating a new image for Sanya International Duty Free Plaza, with sea waves, light, shadow and a sense of fashion.”

On the future for CNSC, he added: “We plan for a long-term vision, trying to see where we are in three to five years, and consider all options, from department store to outlets to duty free stores, and select the best option to create a shopping landscape.

“The trend towards one-stop-service is becoming stronger, especially for those on vacation and Millennials. We combine travel retail, seaside vacation, yacht and cruise, offering a full experience. With our partners, the FTP policy and with Sinopharm, we will seize this golden opportunity.

“CNSC will embrace the future, create a new fashion landmark and make the impossible possible.”

Speaking for another pioneer in the market, Zhuhai Duty Free Group General Manager Chen Hui spoke about the retailer’s ambition to expand into Hainan. For more on this story click here.

In the same session, m1nd-set Founder and President Dr. Peter Mohn and Travel Retail Research Director Clara Susset presented highlights of a study into consumer trends, based on interviews with 1,500 duty free shoppers.

Note: Every fortnight The Moodie Davitt Report publishes Hainan Curated, in association with Foreo, a selection of all recent stories from the offshore duty free sector in Hainan province.

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