Hainan duty-free retail giant gears up for rising market competition




2020 was a year of lockdowns due to COVID-19.

For the same reason, it was also a bumper year for China's luxury goods retailers as Chinese tourists who used to swarm stores around the world on a shopping spree now have to pour their money at the duty-free stores within the national borders.

Hainan, the tropical island province in the very south of the country, has been riding on the waves of a consumption boom. Taking advantage of its newly acquired position as a free-trade port, the local government has been issuing licenses for duty-free businesses one after another, introducing competitors to the coveted market.

According to a report on the Chinese luxury goods market in 2020 jointly released by Bain Company and Tmall Luxury Division of Alibaba, the global luxury goods market is expected to shrink by 23 percent in 2020. However, due to the reduction in outbound travel, the growth in domestic luxury goods consumption in China has reached a record high and is expected to achieve a 48-percent growth.

Offshore duty-free shopping in Hainan is an important new engine that drove the growth of luxury consumption in China last year, according to the report.

Sanya International Duty Free Shopping Complex, the world's largest single-building duty-free shop, Sanya, south China's Hainan Province. /Yang Zhen

The Chinese government on June 1 released a master plan for the Hainan free trade port that aims to build the island province into a globally influential, high-level free trade port by the middle of the century.

Accordingly, starting from July 1, Hainan increased its annual tax-free shopping quota from 30,000 yuan to 100,000 yuan ($4,640-$15,470) per person and expanded the range of duty-free goods from 38 categories to 45. It also lifted the previous tax-free limit of 8,000 yuan for a single product.

In just half a year, the average daily sales of offshore duty-free shops in Hainan exceeded 120 million yuan, two times more than a year ago, according to government figures. The actual annual sales of all duty-free stores surpassed 32 billion yuan.

Since the implementation of the offshore duty-free policy in Hainan in 2011, the state-owned China Duty Free Group (CDFG) has been running all four duty-free shops on the island, including Sanya International Duty Free Shopping Complex, the world's largest single-building duty-free shop.

Last year, Shenzhen State-Owned Duty Free Commodity Group Co. Ltd, China National Service Corporation for Chinese Personnel Working Abroad (CNSC), and another two local enterprises in Hainan obtained the offshore duty-free business qualification, which means that at present, there are five companies operating nine offshore duty-free shops in Hainan, including four in Haikou, the capital city of Hainan province; four in Sanya, a city hailed as the "oriental Hawaii," and one in Qionghai.

Hainan is also regarded as a development opportunity by luxury brands, the report cited, not only because it has become an alternative to traditional shopping destinations such as Hong Kong and South Korea in the short term, but also because it is part of the Chinese government's plan to promote domestic consumption.

In an exclusive interview with CGTN, Gao Xujiang, executive director of Sanya Downtown Duty Free Store Co., Ltd affiliated to CDFG, shares his views on facing growing competition home and abroad and attracting consumers, and the future development of the Chinese duty-free industry.

The following is an excerpt from the interview, which has been edited for clarity and brevity.

The second section of Sanya International Duty Free Shopping Complex opened in January offers tourists a range of mouthwatering delicacies in Sanya, south China's Hainan Province. Wu Shan/CGTN

CGTN: How are you dealing with competition as more operators enter the Hainan market?

Gao : Hainan's duty-free market still has a lot of room to grow in the future.

Based on our own business experience and the country's continuous adjustment of Hainan's duty-free policy in recent years, I think the duty-free market in Hainan is very promising.

In fact, CDFG and other businesses, including Shenzhen State-Owned Duty Free Commodity Group, have all been operating over the past few years. And moderate competition has existed all along.

We still have confidence in the entire Hainan market. CDFG's share in the duty-free market has grown from around 30 percent to even 90 percent now. We have accumulated a lot of experience, and have managed a full range of professional development in procurement capabilities, marketing, sales, and supply chain.

(Currently) these companies have also started operating in the Hainan market. This is a good thing for us to adapt to market changes, find our own problems and make future operations better.

CGTN: What changes has CDFG made to embrace the new quota policy and growing consumption?

Gao : Firstly, we have increased many sales categories, such as wine, electronic products, as well as nutrition and health products and adjusted an area of 9,000 square meters to set up a smart electronic pavilion and a centralized sales area for products like perfumes and cosmetics to meet the new market demand brought about by the policy. Then, we have added 18 pick-up points at the airport so that everyone can get the items delivered as soon as possible. Meanwhile, customs clearance efficiency in the past year has been three to four times higher than that of a year ago.

Hainan has increased the annual tax-free shopping quota to 100,000 yuan per person while cutting the previous limit of 8,000 yuan for a single product. The space for development is very large.

In the future, a series of improvements is required when it comes to the overall operation of sales, procurement, logistics, marketing, customer service, etc. We will also continue to make efforts to attract more brands and products that are more suitable for the Hainan duty-free market.

CGTN: How can CDFG retain customers once they are free to shop abroad again after the epidemic?

Gao : In my view, Chinese people who go abroad to buy luxury goods may move to Hainan, because our categories and brands are constantly increasing, and sales strategies and sales prices will also be adjusted appropriately.

Therefore, from the perspectives of shopping convenience and the country's promotion of consumption growth, internal circulation, and free trade port construction, there will be more advantages that can attract the consumers who used to spend in Japan, South Korea, Hong Kong and Macao to shop in Hainan in the future.

CGTN: How do you view the future development of China's duty-free industry?

Gao : China is a particularly large consumer goods market, and now more and more brands want to enter China's duty-free market. It is also a particularly promising market for developed economies.

We have also experienced this deeply from the contact with suppliers and feel very proud of that as China is stronger.

The Chinese economy is also growing well. The epidemic has certainly had an impact on the economy, but it is still very controllable. As we continue to compete with each other and increase revenues, China's duty-free market will surely develop steadily in the next few years.

Videographer: Yu Yingtian, Zhang Xian

Video editors: Yu Yingtian, Zhang Huimin

Article by Zhang Huimin

Producer: Zhang Junfeng

Cover image designed by Li Wenyi


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