Leading the way out of crisis

China Duty Free Group all ready to roll in Hainan

Focus on Hainan. That’s the simple message for the travel retail industry as China’s domestic travel market shows an encouraging kick start. With the May holidays approaching, all eyes are on Hainan Island where the offshore duty free industry is set to boom as Mainlanders are freed from the travel and spending shackles.

China Duty Free Group plans to be there to greet them with a range of promotions, discounts and exclusives, as President Charles Chen told Martin Moodie.

In what will come as music to the ears of the travel retail community, China Duty Free Group (CDFG) President Charles Chen is predicting a strong, rapid and sustained resurgence in China’s offshore duty free industry on Hainan Island as new COVID-19 cases in the country plummet.

As of 6 April, zero new cases had been reported in Hubei province (whose capital, Wuhan, was the original epicentre of the outbreak) on 13 of the previous 18 days. Over the same period, virtually all cases reported nationwide were related to passengers arriving from overseas.

Charles Chen: Through its Hainan Island operatoins, CDFG is well placed to spearhead industry recovery in China, Asia and the world

Click below to hear CDFG President Charles Chen’s interview with Martin Moodie

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CDFG has been hard hit by the health crisis. As reported, the retailer was forced to close 135 stores at the peak of the outbreak, including the CDF Mall in Sanya – the biggest duty free door in the world for many beauty brands – and the Haikou downtown business on 26 January. Both stores subsequently reopened on 20 February as the situation improved.

Speaking late last month on The Moodie Davitt Report’s new Podcast series – In crisis – Travel retail Voices (click on icon above to listen), Chen expressed his conviction that the Hainan business would see surging levels of business in the weeks and months ahead.

“I feel very confident about China Duty Free for two reasons,” he told The Moodie Davitt Report. “The first is that we’ll get great support from the suppliers and vendors,” he added, highlighting the fact that Chinese travellers would be reluctant initially to travel overseas but retained pent-up demand and spending power.

“The second point is that Mainland China has already controlled the virus, which means the government will encourage the Chinese people to travel just within China. I know that more than ten provinces today have already allowed their citizens to travel between provinces. I think gradually, even in the latter half of this year, a lot of people will be travelling within China.” Hainan would be in the forefront of that recovery, he said.

“Do not lose your confidence. We still have a lot of opportunities… China is still the market with the most potential. So believe in us and cooperate with us at China Duty Free.”

“Chinese people will tend to travel domestically, because they still want to go on holiday and spend money. So, I say that the purchasing power per Chinse person is still there. In my opinion, it may be a bit more difficult for this spend to go on international flights and international airports. So we are already reorganising the structure within our companies to focus mainly within Mainland China and especially in Hainan.

“You’ll see in the coming days that the sales in Sanya and Haikou are still very good. This will be especially true in the coming months, especially from June, July, and August when students go on holidays and we have the mid-autumn festivals; and in October when we have our national days.”

Chen applauded key vendor partners for their stirring support during the crisis and said that in partnership with them CDFG can achieve great things in coming months in-store, online and in pre-order. Local government backing has also been strong, he added.

“We’ve been talking with the governor of Hainan province and they have also given us a lot of support. They asked us to reopen all the spaces and all the stores and to do a lot of promotion. So, we are thinking that from the beginning of May and maybe even from the end of April, that we will have a lot of planning for the promotions.

CDF Mall hosted some of the most spectacular brand launches and campaigns in travel retail history last year, including these from (above and below) Kiehl's, Estée Lauder, Dior, Shiseido and Lancôme. Expect more of the same in coming months, says Chen.

New store to boost capacity

“Each month they want to do a promotion in Hainan. In Hainan we already have four stores – in Sanya, Haikou Airport, and downtown Haikou Riyue and Qionghai Bo’ao. Also, we have a new upcoming store in Haikou, under construction. It’s going to be ready very soon,” commented Chen.

The new shopping mall is underpinned by a government belief that it will help stimulate the economy in the second half, he noted. “They know that within the channel there is a lot of consumption and a lot of consumers, and they want to encourage people to spend money,” he said.

“The Hainan market is there 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.”

Happier days as Charles Chen and Martin Moodie tour the magnificent new Daxing International Airport last November. Much has changed in China travel retail since then but Chen says better times are coming soon.

Because of the virus, people had avoided Hainan and Sanya during Chinese New Year, Chen pointed out, saying that would only escalate the desire to visit the island to shop duty free. “We should think about that demand. They missed the chance to come but they still want to buy. We can tell them they can still purchase. We can do travel retail business while not affecting the local market. That is exciting for the brands. Chinese people want to buy.”

CDFG is already working with local government and Customs on ambitious plans for the May holidays, Chen said. “I think the opportunity could be huge,” he said.

“Do not lose your confidence,” he said in a stirring message to brand partners. “We still have a lot of opportunities.” Martin, you will remember that two years ago in Shanghai [at The Trinity Forum], I said, ‘If you miss China, you will miss the future.’ China is still the market with the most potential. So believe in us and cooperate with us at China Duty Free. We have a lot of opportunities. At this moment we should be supporting each other.”

Showing brand support: Chen says that Hainan Island can offer respite to brands that are under pressure in other markets; above, video of a striking Lancôme Absolue campaign at CDF Mall in November last year

Helping brands with stock sell-through

Chen acknowledged the pressures felt by many brands amid the crisis with large undepleted stock levels. “A lot of brands have stock that can be moved and we at China Duty Free Group will try to help everyone,” he pledged. “We will be very fair on trading terms to ensure that all stock can be sold out. And we can do that as the China market really is huge.

“I really hope that all my friends in the industry will come and talk to us. We can help and support each other. You will see in future that if we do it properly, China represents a big chance for all the brands. We still have a very bright future.”

Showing solidarity with others and giving heartfelt thanks for support

Chen also sent messages of solidarity to the people, brands and retailers of other nations now being badly affected by COVID-19.

“I love this industry and all my friends in it. I am preparing next week to write a letter to all our vendor partners, especially in countries such as Italy or France, who wrote letters to me during our difficult moments. We will support them. Whatever they want us to do, we can do. We have a supply of facemasks now in China and can even send them to Italy or other countries where they are needed by vendors.”

He thanked The Moodie Davitt Report and its advertising partners who supported our Daxing International Airport ‘Pride of a Nation’ Wuhan fund-raising eZine published last month, and other brand companies which had supported CDFG throughout the crisis.

“I want to thank you [and those partners] for the money for the hospital (Union Hospital in Wuhan, the recipient of the eZine’s revenues), and to the many vendors who supplied facemasks to us, which we sent to our stores and staff. I will remember that in my heart.”

Estée Lauder partnered with China Duty Free Group to introduce a larger-than-life gifting pop-up in the CDF Mall, Haitang Bay in December

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The Moodie Davitt eZine

Issue 278 | 7 April 2020