CHINA. China International Travel Service Corporation (CTS), parent company of China Duty Free Group (CDFG) announced today that two new offshore duty free stores will open on Hainan Island on 13 April, write Martin Moodie and our special correspondent in China.
The opening dates were revealed by Li Gang, Deputy General manager of China Tourism Group, at a press conference in Haikou, Hainan earlier today.
State media revealed that on the same day, CTS and Hainan-headquartered aviation-to-leisure giant HNA Group had signed a strategic cooperation agreement in Haikou. The two parties will cooperate across various sectors, including aviation, duty free retailing and asset projects to promote the upgrade of the Hainan Free Trade Zone port.
The two parties are unveiling a range of special aviation tourism products and large-scale duty free shopping activities with various themes such as “10,000 people travel to Hainan”and“Sun Moon Plaza Hi-purchase Promotion.
As reported, 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.
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 have begun to pick up as the crisis has eased across China.
[Click on the icon to view the wonders of Hainan]
In addition to consolidating and optimising Hainan’existing duty free business – anchored by CDFG’s acclaimed CDF Mall – both signatories will also expand the floorspace and product range of the Sun Moon Plaza City store, and develop a new store at Sanya Phoenix International Airport.
Duty free product range to be extended?
In a strong speech, Li Gang said that as of the end of 2019, CTS has established a total of 18 holding companies on the island with total assets of around CNY60.07 billion, total operating income of CNY17.6 billion and a CNY810 million local tax contribution.
Li Gang said that CTS has set up a special working group to increase the investment attraction and expand the business area of Haikou Meilan International Airport Terminal 2, Sun Moon Plaza, Haikou International Duty Free City – and to increase the variety and category of duty free goods.
The latter is particularly relevant. If wines & spirits, currently excluded, were to be added to the range of products allowed to be sold through the island’s offshore duty free shopping sector, it would be a major boost for suppliers, and CTS/CDFG alike – as well as a great consumer incentive to visit the island.
Other measures such as enhanced marketing and a strengthening of online sales will be deployed to help CTS meet sales goals, Li Gang pledged.
CTS will also strengthen the procurement of best-selling products; and negotiate with suppliers to create specially themed Hainan products.
He noted that the COVID-19 crisis had had a huge impact on the national economy and the key tourism sector. The resumption of production in various industries across the country is accelerating, he noted, and offshore duty free will play a key role in boosting consumption and Hainan’s economy.
In addition to making every effort to achieve duty free sales targets, CTS will promote the island’s tourism industry through various infrastructure projects. These include building the Hainan Tourism Service Product R & D Center; promoting the opening of a new Sanya sea route by Star Cruises ‘Gulangyu’, and increasing the number and quality of hotels in Qiong, northeastern Hainan. CTS will also play a major role in completing the construction of the hugely ambitious Hainan Free Trade Zone project.
Hainan Island was designated as China’s 12th free-trade zone by Chinese leader Xi Jinping in April 2018. The entire island will be transformed into a free trade zone – the first in China to cover an entire province.
China Duty Free Group well-placed to drive travel retail rejuvenation
Today’s news reaffirms China Duty Free Group (CDFG) President Charles Chen’s recent prediction of a rapid resurgence for China’s offshore duty free industry on Hainan Island as new COVID-19 cases in China plummet, made in a Podcast interview with The Moodie Davitt Report Founder & Chairman Martin Moodie.
[Click on the Podcast icon to hear Charles Chen’s interview with Martin Moodie]
CDFG had 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. Based on the early 2020 pre-closure performance, informed observers believe business could recover relatively quickly. According to one leading Chinese analyst, sales at CDF Mall in January actually increased by +16% year-on-year. Given the five days of trading suspension, the like-for-like growth rate was over +30%, with cosmetics sales particularly strong.
Speaking on The Moodie Davitt Report’s Podcast series – In crisis – Travel Retail Voices last month, Chen expressed his firm belief 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 said, highlighting the fact that Chinese travellers 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 [and therefore Sanya] would be in the forefront of that recovery, he said.
“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 Chinese 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.
| All aboard the Hainan express The May edition of The Moodie Davitt Report Magazine profiles Hainan’s burgeoning offshore duty free industry and examines its likely pivotal role in leading the Asian travel retail sector’s recovery.
The May edition will also carry a special ‘Road to Recovery’ report, edited by Dermot Davitt, which assesses how travel retail will look – and might best prosper – once it emerges from the biggest crisis in its 73-year history. |
“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 promotions. So, we are thinking that from the beginning of May and maybe even from the end of April, that we will start planning for the promotions.
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 its opening will 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,” Chen 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.”
“Do not lose your confidence We still have a lot of opportunities. 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.”
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 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.”
Helping brands with stock sell-through
Chen acknowledged the pressures felt by many brands amid the crisis with large un-depleted 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.”
