Road to Recovery

Spurring a duty free revival in Hainan

China’s offshore duty free shopping policy, introduced in 2011, has proved a huge hit. Now, at a time when the tourism and travel retail sectors desperately need rejuvenating, China Duty Free Group and parent company China International Travel Service have come up with another ground-breaking innovation to maximise allowance spending.

China Duty Free Group (CDFG) is preparing for a new wave of shopping through its Hainan Island business as the resort island helps lead the recovery from the COVID-19 crisis.

In a major boost to the offshore business, the authorities have just introduced a new scheme allowing Mainland visitors to Hainan to spend any of their unspent RMB30,000 (US$4,240) annual allowance online for up to 180 days once they arrive back – and have the goods couriered to their home.

A CDFG spokesperson told The Moodie Davitt Report: “Travellers could not go shopping in CDFG stores [on Hainan Island] in the middle of the COVID-19 outbreak. After getting the government’s approval as well as support of suppliers, CDFG has launched the Hainan offshore replenishment online service, which aims to serve 16-year-old-plus Chinese citizens who leave the island within 180 days. The replenishment online service uses the offshore duty free personal yearly quota.”

Charles Chen: Promoting the idea of opportunity in unspent allowances

The announcement confirms the pledge of CDFG and China International Travel Services (CITS) President Charles Chen in an interview with The Moodie Davitt Report last month, when he said that a key opportunity lay with unspent duty free allowances.

“The Hainan market is extremely big and each year there are so many visitors. We have a quota of RMB30,000 (US$4,230) per person per year but so far the average transaction is around RMB5,000 (US$705). So I said to the brands, we have RMB25,000 (US$3,520) to play with that is travel retail business.”

One of the recently opened Hainan Duty Free Experience Stores, featuring the logos of Sanya CDF Mall and China Tourism Group (parent company of CDFG and China International Travel Services)

Now CITS and CDFG, in cooperation with the Hainan and central governments, have found a way to unlock that spend.

Right from the start of the COVID-19 crisis, CDFG has invested heavily in boosting its online activities.

According to state Chinese language media reports seen by The Moodie Davitt Report, CDFG’s online duty free sales are understood to have grown by +200% in Q1, generating a third of total revenues. Offline sales are also picking up fast, already back to 80% of last year’s record levels and expected to climb further over the crucial May holiday, which began on Friday.

As we have reported regularly, Hainan seems certain to benefit from many Chinese travellers’ unwillingness (or inability due to travel restrictions) to venture overseas this summer. For the Chinese to travel abroad (and shop) in any significant numbers, China must first be considered ‘safe’ by any host destination, as must in turn any destination favoured by Chinese consumers.

CDFG President Charles Chen looks confidently towards recovery

CDF Mall is the cornerstone of the duty free business in Sanya, which has been buoyed further by recent proactive policy decisions and fresh investments

That is what makes Hainan so attractive. On 24 March, several Chinese state media declared the island clear of COVID-19.

On 22 March, Hainan’s provincial government announced a CNY150 million (US$21.2 million) rejuvenation plan for the island’s beleaguered tourism industry with duty free shopping at the heart of its plans. On 13 April, two new off-airport stores opened, representing a core component of that rejuvenation, particularly with the all-important May holidays upon us.

Hainan, often dubbed ‘China’s Hawaii’, and famous for its pristine environment, tropical climate, beach resorts and beautiful forested, mountainous interior, is hugely dependent on tourism income. Visitor numbers plummeted after the COVID-19 outbreak began to gather pace in early January but are picking up fast as the crisis eases across China (see page 11 for the latest data on China domestic traffic).

Timeline of recent industry developments on Hainan Island

26 January: China Duty Free Group (CDFG) closes CDF Mall in Sanya and Haikou downtown store for health reasons

19-20 February: Duty free stores re-open

21 March: CDFG President Charles Chen tells The Moodie Davitt Report of his high expectations for summer travel and spend on Hainan, from May through to the mid-Autumn festivals and national day in October. Crucially he flags up a potential positive change to the treatment of duty free allowances, with visitors to be permitted to maximise their quotas online (see main story).

22 March: Hainan’s provincial government announces a CNY150 million (US$21.2 million) rejuvenation plan for the island’s beleaguered tourism industry with duty free shopping at the heart of its plans.

7 April: Haikou Customs says sales picked up encouragingly in the period from 19 February to 30 March, hitting around 80% of previous year levels at the island’s four duty free stores.

11 April: China International Travel Service Corporation (CTS), parent company of CDFG, confirms that two new offshore duty free stores will open on Hainan Island on 13 April.

15 April: China unveils plans to permit visa-free travel to Hainan from May. The policy allows travellers from 59 countries to visit Hainan for 30 days visa free.

29 April: CDFG introduces scheme allowing Mainland visitors to Hainan to spend any of their unspent RMB30,000 (US$4,240) annual allowance online for up to 180 days once they arrive back.

1 May: Seasonal holiday begins, with a surge in Hainan travel bookings.

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The Moodie Davitt eZine

Issue 279 | 4 May 2020

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