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Hainan is paradise island for Chinese duty-free shoppers

Hainan is paradise island for Chinese duty-free shoppers

Monday, 22 March 2021
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Christophe Roulet
Editor-in-chief, HH Journal

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5 min read

Hainan island – one of the stop-offs for Watches and Wonders 2020 – reels in tourists and Chinese shoppers with its beaches, palm trees and duty-free malls, a sector that is now opening to competition. Richemont is in the running through a collaboration with China Duty Free Group and a stake in Dufry.

“Duty-free sales in China have been extremely solid in the last 12 months. We remain optimistic because the Chinese can hardly get out of China.” Reported by Bloomberg, these are more than just words from Panerai chief executive Jean-Marc Pontroué. The Florence-based brand, part of the Richemont group, is opening two locations this year on Hainan, a duty-free paradise and favourite destination for Chinese tourists. The subtropical climate and luxury beachfront hotels of this island in the South China Sea, across from Vietnam, are a magnet for visitors, Russians included. All this fits perfectly with President Xi Jinping’s objective to focus on domestic consumption as a driver for growth alongside foreign trade, with Hainan as one of the spearheads. Sanya, a resort at the southernmost tip of the island, last year hosted an edition of Watches and Wonders.

Hainan Province plans to build itself into an international tourism consumption center
Hainan Province plans to build itself into an international tourism consumption center

Ever since Xi Jinping designated Hainan as China’s largest free-trade zone two years ago, the island has taken off, helped by an array of government incentives. First a tax sweetener: corporate tax and personal income tax are capped at 15%. Raw materials are exempt from import duty provided they are used for local manufacturing and, in a gesture of welcome (prior to new Covid-19 restrictions), Beijing has waivered visa requirements for visitors from a list of foreign countries. Chinese nationals eager to spend their yuan also benefit from tax-free conditions as long as they are not resident on the island: a clever way to encourage shoppers to spend, spend, spend at home rather than wait for overseas trips in order to avoid hefty import duties of up to 50% on luxury goods.

Sanya Cruise Terminal on the island of Hainan
Sanya Cruise Terminal on the island of Hainan

When coronavirus hit, the government was quick to respond by increasing the annual tax-free shopping quota from CNY 30,000 to CNY 100,000 (US$ 14,000). Spirits and mobile phones were added to the list of eligible goods. Chinese visitors can now have their purchases delivered to their home address and can continue to buy duty-free goods online from Hainan stores for six months after departing the island. Results weren’t slow in coming. Despite a Covid-related fall in the number of visitors, from 83 million in 2019 to 65 million in 2020, spending has surged. Last year shoppers dropped CNY 32.7 billion (US$ 5 bn), a year-on-year increase of 127%. According to government figures, duty-free sales in Hainan averaged CNY 180 million per day in January this year. Extrapolated over twelve months, this means sales should double in 2021 compared with 2020. Some observers are already talking about a tenfold increase in annual sales at CNY 300 billion (US$ 46.5 bn) come 2025, when the island is scheduled to complete its transformation into a giant duty-free store.

Richemont's multi-brand TimeVallée store opened in early February at Mova Mall in Haikou, in partnership with China Duty Free Group.
Richemont's multi-brand TimeVallée store opened in early February at Mova Mall in Haikou, in partnership with China Duty Free Group.

As if this weren’t enough, Beijing is relaxing the rules further. Until end 2020, duty-free trade on Hainan was entirely controlled by the state-owned China Duty Free Group (CDFG), which owns four humongous malls at key points on the island. One of them, Mova Mall in the province’s capital of Haikou, is where Richemont has established its twelfth TimeVallée space, in collaboration with CDFG. Showcasing the group’s eight specialist watchmakers within a concept where the digital experience is as rich and varied as the multi-brand welcome, this new point of sale opened on February 1st, ready to serve visitors travelling to Hainan for the Lunar New Year festivities. Henceforth, however, China Duty Free Group will face competition. Since the start of 2021, four new Chinese public operators have been granted licences with five new stores opening these past weeks, operated by Shenzhen Duty Free, Hainan Development, Hainan Tourism Investment and Sinopharm. And because not all these new arrivals have sufficient experience in the sector, partnership deals are being struck, for example between Hainan Development and Swiss duty-free giant Dufry.

Watches and Wonders 2020 Sanya
Watches and Wonders 2020 Sanya

This brings us back to Richemont, which since 2017 has owned a 7.5% stake in Dufry. Better still, at end 2020 Alibaba took a 10% share of Dufry’s capital following a CHF 700 million capital increase to bankroll a buyout of its subsidiary, Hudson. Dufy and Alibaba have also announced the creation of a joint venture that will develop duty-free business in China. The partnership with Hainan Development couldn’t have come at a better time. And let’s not forget that Richemont and Alibaba already have an e-commerce joint venture, Feng Mao, which launched in China in 2020. The sentiment “among friends” is clear: Hainan is shaping up to be the heart of booming Chinese consumption. And as China makes plans to open duty-free shopping complexes in major cities on the mainland, the prospects for development just grow and grow.

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