Duty-free Hainan to draw China's luxury shoppers

China hopes that Hainan will satisfy Chinese shoppers' lust for luxury, with relaxed restrictions on duty-free shopping.
China hopes that Hainan will satisfy Chinese shoppers' lust for luxury, with relaxed restrictions on duty-free shopping. PHOTO: REUTERS

SANYA • China's efforts to lift local consumption, spur domestic tourism and keep within its borders citizens who splurge in Milan or Seoul have spawned a duty-free paradise on the southern island of Hainan that it hopes will satisfy a lust for luxury.

Firms such as the owner of the world's biggest duty-free shopping centre, China International Travel Service (CITS), are capitalising on a relaxation of duty-free spending restrictions in February, with conglomerate HNA Group reporting a 160 per cent surge in sales.

Government initiatives, including 19 more duty-free shops nationwide, come as sales of the types of luxury goods that line duty-free shelves fell by 2 per cent last year. Market watchers pin the blame on a campaign against demonstrations of wealth among public officials, as well as slowing economic growth.

As things stand, the Chinese buy close to 80 per cent of their luxury goods abroad in cities such as Paris, London and Tokyo, Bain Consultancy estimated.

"Whether it is Burberry or Richemont, recently, many brands in the space have noted that the future of luxury demand will be about the Chinese and incrementally at home," said HSBC analyst Erwan Rambourg in Hong Kong, who recommends buying CITS shares.

In Hainan, duty-free shops offering products priced as much as 30 per cent less than the mainland have been operating since 2011, under a trial programme aimed at developing the island as a tourist destination. Customers could initially only buy up to 8,000 yuan (S$1,700) worth of duty-free goods, twice a year. From Feb 1, they have been able to make purchases any time of the year, provided the annual total does not exceed 16,000 yuan. At the same time, stores have also been able to sell goods online for collection at airports.

In Hainan's provincial capital Haikou, HNA's duty-free sales have since rocketed. In the island's city of Sanya, state-controlled CITS opened the country's first duty-free shopping centre in 2014. It is about nine soccer pitches in size and filled with shops stocking over 300 brands, including from Burberry Group and Compagnie Financiere Richemont, as well as goods such as baby formula.

"It's definitely much cheaper", said 20-something handbag shopper Zhang Pei Pei, "but the choice of products is less".

Hong Kong-based CLSA analyst Aaron Fischer said the limited number of duty-free zones is unlikely to materially boost domestic spending on luxury goods. He also said price was not the only reason for shopping outside of China.

Buying luxury goods in the country of origin gives "a greater feeling of satisfaction", he said.

REUTERS

A version of this article appeared in the print edition of The Straits Times on May 31, 2016, with the headline 'Duty-free Hainan to draw China's luxury shoppers'. Print Edition | Subscribe