Trouble in Chinese shopping paradise as Hainan’s duty-free spending falls 29%

BEIJING – Duty-free spending in China’s island province of Hainan, where global luxury players from LVMH to Kering have set up shop, slumped 29.3 per cent in 2024 as a weak economy saw a sharp drop in domestic visitors.

Shoppers visiting Hainan, known for its glitzy seafront hotels and sandy beaches, spent 30.94 billion yuan (S$5.8 billion) on duty-free goods in 2024, local Customs data showed on Jan 2, falling 29.3 per cent from a year earlier.

The number of shoppers visiting Hainan fell 15.9 per cent to 5.68 million, the data showed, from 6.76 million in 2023.

“The depreciation of foreign currencies, such as the Japanese yen, combined with attractive travel policies like visa-free entry in Malaysia, has led many Chinese consumers to seek lower prices abroad,” said Mr Kenneth Chow, principal at consultancy Oliver Wyman.

While the retail spend in Hainan is not significant to the national economy, the declines deal a blow to foreign luxury brands counting on a post-pandemic boom that tripled sales to 43.76 billion yuan in 2023 from 2019, helped by a policy move in 2020 to raise duty-free purchase limits in Hainan’s 12 duty-free malls.

Major global beauty players such as L’Oreal and Estee Lauder also have exposure to Hainan’s market, where beauty products made up more than 40 per cent of duty-free sales in 2023.

“A decline in consumer confidence has significantly affected Chinese consumers’ willingness to spend on luxury and discretionary items,” Mr Chow added.

“This is particularly true for prestige beauty products, which have seen considerable downturns.”

Hainan’s 2024 slump also bodes ill for plans to turn the entire island, roughly the size of Belgium, into a duty-free shopping zone in 2025. As part of the expansion, brands would be able to run their own duty-free stores rather than rely on partnerships with local players such as China Duty Free Group.

There are also hopes that a wholly tax-free Hainan will draw Chinese consumers away from competing foreign duty-free hubs such as South Korea’s Jeju Island and help kick-start a consumption engine in China’s south.

Domestic consumption has resumed a lower trajectory, particularly in the second half of 2024, as a wave of “revenge spending” after the enforced frugality of the Covid-19 pandemic faded. Overall retail sales grew just 3 per cent in November from a year earlier, far less than the 4.6 per cent expansion expected by analysts.

In late 2024, top officials of China’s ruling Communist Party said China ought to “vigorously” boost consumption in 2025 and seek to expand domestic demand “in all directions”. REUTERS