BW Confidential - Issue #8 - October/December 2011 - (Page 72)

Travel retail Hainan & China Duty Free Group Chinese home advantage A sea change is awaiting the duty-free business as the Chinese government steps in to keep sales on its own soil by Kevin Rozario t won’t have escaped the attention of many beauty houses that China changed its duty-free policy earlier this year to allow its nationals to make duty-free purchases on the tropical island of Hainan, at the southern tip of the country (see box). The move to create an offshore duty-free market is nothing new in Asia; there are examples in Okinanwa in Japan and Jeju in South Korea. Indeed, burgeoning downtown duty-free shopping has enabled Korea to become the biggest travel-retail beauty market in the world. But allowing locals to shop duty free in Hainan—a popular holiday destination—could be just the first step to keeping PRC nationals spending at home, rather than abroad. And the primary beneficiary of that will be China Duty Free Group (CDFG), the main travelretail operator in the PRC market with more than 160 duty-free stores in 29 provinces, and whose market share grows year by year. CDFG takes all At the end of 2010, CDFG finished building and opening, in several phases, a giant 7,000m2 (75,347ft2) store complex in I Sanya, the southern resort on the island where most tourism and the best beaches are located. The 1,500m2 (16,145ft2) beauty area was the first section to open featuring brands such as Biotherm, Christian Dior and Lancôme. The last section to be completed houses an array of luxury boutiques “ Arrivals duty-free shops are being approved this year, which will help to keep luxury consumption in China CDFG vice president Charles Chen The Hainan allowance Duty-free goods can only be bought if travel to Hainan Island is by air and spending must not exceed Rmb5,000 (US$780), plus the bonus of a single item above this amount. Shopping trips are limited to twice a year and once for residents of Hainan province —the province comprises some 200 small islands of which Hainan Island is the biggest. 72 including Burberry, Coach, Ermenegildo Zegna, Gucci and Hugo Boss. Initial demand at Sanya has been overwhelming at times, with long queues outside the store commonplace. Local news sources claim that daily visitor numbers are topping 11,000, with well over one million shoppers passing through the doors of the CDFG shop since the new duty-free policy went into effect on April 20. Average duty-free spending per person is estimated at $300. There is no shortage of tourists coming to the island. Overnight tourist numbers to Hainan reached 25.9 million in 2010, just 663,000 of which came from outside ” China. Some 4.06 million visited Sanya itself in the first half of 2010 (+19.5% growth year-on-year), and the new dutyfree policy will be a big temptation to choose the island instead of places, such as South Korea, Singapore or Japan in coming months. China Duty Free Group vice president Charles Chen suggests that the qualified customer base is in the region of 9.45 million and that the island’s duty-free market is worth $425m. “The new policy has created a new market,” he says. According to CDFG, the five biggest selling categories at Sanya have been cosmetics, watches, luggage, perfume, and small leather goods. A new shopping paradise The store’s popularity suggested that more shops could easily be built to sate Chinese hunger for international brands—and that is exactly what is planned. The government does not seem to be shying away from the idea of turning the island into a giant shopping paradise, having given the green light for another duty-free retail facility at nearby Haitang Bay that will dwarf the existing shopping at Sanya. Some 95,000m2 (1.02m ft2) of duty-free retail space is in the project planning and design stage as part of a larger 350,000m2 (3.77m ft2) complex that will include a luxury brand exhibition center and designer hotel. Apart from these ambitious schemes, the government has set out to keep Chinese traveler spending at home through other October-December 2011 - N°8 - BW Confidential

Table of Contents for the Digital Edition of BW Confidential - Issue #8 - October/December 2011

- Brand & retail news recap
- Companies on the move
Take note
- Market facts, figures & trends
Best of BW
- Highlights from our e-publication
- The latest in fragrance, skincare & make-up
- Estée Lauder Companies group president international Cédric Prouvé
Insight: Fragrance
- Category overview
- Retailer roundtable
- Retailing strategies
- Rare fragrance brands
- Launch roundup
- Spa chains
- Spa case studies
- E-commerce
- Store concepts
Travel retail
- Sector analysis
- Hainan & China Duty Free Group
- Retail concepts
- Passenger habits
- Industry experts on harnassing the power of social networks
- Six up-and-coming beauty brands
Market watch: Russia
- Country overview
- Prestige retailing
- Industry viewpoint
- Market outlook
- Sustainabilty
- Trends
Last word
- Buyology Inc president & co-founder Donna Sturgess

BW Confidential - Issue #8 - October/December 2011