Resilience and revitalisation: How to tap into the domestic duty-free opportunities in China

Hainan Free Trade Port is set to become China’s new duty-free shopping hub as the country’s domestic tourism market continues to thrive, in stark contrast to the massive decline in sales of the big four international duty-free groups.

With international travel restrictions affecting duty-free ports though 2021, most countries struggled with a drop in retail revenue. Despite the restrictions, China’s economy still maintained resilience with local consumers flocking to Hainan for duty-free products.

The largest global travel retailers each saw at least a 38% drop in revenue from 2019 to 2020, China’s travel retail market only saw a 4.8% drop during the same years, followed by a 66.8% growth the following year.

However, the rise of Hainan isn’t an isolated success story. China’s travel retail market, which is forecasted to grow to RMB 150 billion (US $24 billion) by 2025, has seen drastic changes in terms of travel retail destinations, duty-free policies, digitalisation, and consumer profiles since 2020, making it ever so important for marketers to keep up with Chinese travel shopping market trends to stay on top of the game.


Hainan Free Trade Port: Domestic duty-free shopping is on the rise 

On track to becoming the world’s largest duty-free market within the next two years, Hainan’s boom is challenging international duty-free destinations like Korea and Japan, as the international travel retail market is seeing drastic declines under the pandemic. Meanwhile, the government is making endeavors to optimise Hainan’s business environment. 

The “Master Plan for the Construction of Hainan Free Trade Port,” issued in 2020, set the foundation for enormous progress over the past two years. Since 2018, Hainan has added more than 763,000 market entities and created over 233,000 job opportunities. In the foreseeable future, the implementation of the master plan will keep pushing Hainan’s development forward, focusing on tourism, modern service, and high-tech industries. 

Between 2020 and 2021, Hainan alone experienced an 83% increase in sales of duty-free goods, providing clear evidence that Hainan’s duty-free policy is working. In 2021, the number of duty-free shoppers in Hainan rose 73% year-on-year to nearly ten million, and the number of duty-free items purchased increased 71% year-on-year to nearly 53.5 million.

As the opening up of Hainan brings ample business opportunities to the local market, the government has set out to create a stringently regulated business environment, aiming to align with international standards. Therefore, marketers and brands related to the industry need to abide by compliance requirements and understand how to grasp the opportunities under Hainan’s new rules.


Recovery of China’s consumer market is underway

China’s economy is undergoing an optimistic recovery, with a nominal increase of 9.1% in disposable income per capita and 13.6% in consumption expenditure in 2021. Although the digitalisation of China’s consumption market is already at a high level, the digital transformation of travel retailers has been accelerated as well as incentives like loyalty programs under the context of Covid-19. Brands are increasingly spending more on digital marketing, which is projected to grow to RMB 963 billion (US $151 billion) in 2024.

China Duty Free Group (CDFG), which now dominates China’s travel retail market, also attaches great importance to building a digital online system, considering it crucial for the company to target Gen Z consumers.

Get to know the four key types of new Chinese travel shoppers

Due to tight restrictions on international travel and the expansion of the domestic duty-free market, Chinese outbound travel shoppers are shifting focus to domestic outlets. Notably, the number of domestic trips is projected to keep increasing with an estimation of 10 billion by 2025 and 15 billion by 2030

Who are the new Chinese travel shoppers? iClick’s proprietary “iAudience” market intelligence platform has identified four key groups of domestic travel shoppers: 

  1. The family trip: Travellers who prefer traveling with family members instead of alone or with strangers, which accounts for the majority of Chinese travelers
  2. The solo trip: Independent travellers, who accounted for 96% of inbound travel and 50% of outbound travel in 2019 
  3. The small-town youth: Young people from third-tier and fourth-tier cities, which accounted for 60% of travel consumption during the 2021’s Labour Day Golden Week
  4. The Sanya traveler: Travellers who look for shopping experiences, especially luxury goods

Each of the groups has distinguished demographics, behaviors, and interest categories, which are covered in detail in the Chinese Travel Shoppers 2022 Whitepaper.


Implications for marketers targeting Chinese travel shoppers

Although the outlook for the domestic travel retail consumption is quite optimistic, the consumption patterns of Chinese travel shoppers are constantly changing in the wake of Covid-19.

  1. Digitalisation has never been more important and brands must meet their consumers online by establishing a strong social media presence and online-to-offline experience.
  2. Brands must keep up with the ever-changing behaviors of Chinese travel retail shoppers and adapt marketing strategies accordingly. 
  3. Shift focus from international to domestic tourism — it is very unlikely to see restrictions on international travel lifted in the near future. Therefore, brands should take advantage of domestic opportunities like reaching out to potential customers through domestic duty-free platforms.

Download the full “Chinese Travel Shoppers 2022 Whitepaper” to read the detailed analysis of the modern Chinese travel retail shopper, learn how to navigate Hainan’s duty-free ecosystem, and uncover how to reach travel retail consumers through digitalisation.

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