2023 Hainan Travel
Retail Market
Whitepaper
Resilience and reshaping,
amid risks
April 2023
By KPMG China and The Moodie Davitt Report
? 2023 KPMG Advisory (China) Limited, a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Printed in Chinese Mainland.
0Foreword
It is our pleasure to present the 2023 Hainan Travel Retail Whitepaper in the 3rd China International
Consumer Goods Expo, after the release of the 2nd edition in July 2022.
With the gradual easing of the national COVID-19 anti-pandemic policies in December 2022 and the
reopening of the cross-border business and leisure travelling, Hainan, as one of the hotspots for
domestic travel and spending, experienced a strong rebound in its travel retail performance at the
beginning of 2023. The island''s tourism infrastructure, from roads to hotels, from retail to restaurants,
is undergoing significant investment and construction at a rapid pace, laying a solid foundation for
creating more unique consumer experiences for clients. As witnessed by the opening of Haikou
International Duty Free Shopping Complex and Wangfujing International Duty Free Harbor City in
Wanning, heavy investment continues to be poured into the sector. This suggests a robust confidence
in the future of the business. In March 2023, the new policy of " Guaranteed pick-up" and " Buy and
pick-up" for offshore duty-free shopping further deepened the benign development of the Hainan
offshore duty-free market.
With the planned seal-off coming in 2025, it is an exciting moment for consumer market on the island,
with brands focusing intensively on the viability of their future business models, especially the impacts
to stakeholders along the supply chain due to the new Sales Tax scheme. Brands are acutely aware of
establishing proper Hainan structures and vehicles that will empower their commercial capabilities and
allow synergy with the Greater Bay Area and the rest of mainland China. We believe that Hainan''s
duty-free shopping, as its "golden signature", will continue to achieve more impressive results in the
future.
In this whitepaper, we will delve deep into key trends impacting the retail market in China, explore
Chinese consumer buying behavior, and identify consumer personas. We will also examine how the
upcoming operation of the free trade port and the closing of the borders will further promote the
transformation of the game rules in the Hainan travel retail market. Our goal is to provide more
professional insights for duty-free operators and brands competing in the Hainan travel retail market.
Through this paper, KPMG and The Moodie Davitt Report present insights on the Hainan travel retail
market, with the goal of enabling duty free operators and brands to seize opportunities in this rapidly
evolving landscape.
Nicole Zhang Martin Moodie
Senior Office Partner, Hainan Founder & Chairman,
KPMG China The Moodie Davitt Report
? 2023 KPMG Advisory (China) Limited, a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Printed in Chinese Mainland.
1Contents
Hainan travel retail business – where
03
01
next?
Evolvement of China consumers in the
15
post-pandemic era
02
2023 is the ideal time when we set
26
03
the course for victory for Hainan!
33
Final word
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Printed in Chinese Mainland.
201
Hainan travel retail
business – where next?
? 2023 KPMG Advisory (China) Limited, a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Printed in Chinese Mainland.
3Defining the travel retail and duty free
sectors
‘Travel retail’ embraces a vast worldwide business sector focused, as the
name suggests, on shopping by travellers (be they domestic or international).
It is a sub-sector of two principle) ‘parent’ industries – aviation and tourism –
and therefore anything that impacts those sectors, positively or negatively,
invariably has a knock-on impact to travel retail.
Travel retail is anchored by the duty-free channel – goods sold free of duty
and tax, usually to international travellers. However, in three cases (Hainan
Free Trade Port in China, Jeju in South Korea and Okinawa in Japan), duty-
free rights exist for domestic travellers – so-called ‘offshore duty-free’.
Duty-free sales take place at airports and seaports; certain downtown duty-
free stores; onboard airlines, cruise ships and ferries; at land border
crossings; in specialised stores serving diplomatic and military personnel;
and online through established duty-free retailers.
Products that can be sold duty- and/or tax-free vary by country and
jurisdiction (there is no duty-free between European Union member
countries, for example). Goods bought under these rules can be brought into
destination countries in varying quantities, called allowances. The Hainan
Free Trade Port annual offshore duty-free allowance of RMB100,000
(approximately USD15,470) is the most generous (and we think far-sighted)
in the world.
How the COVID-19 crisis impacted the sector
2020-2021
Until 2020, the duty-free industry, invented at Shannon Airport on the west
coast of Ireland in 1947, was a vibrant and highly resilient business sector,
historically bouncing back quickly from regional crises (natural disasters,
recessions, currency fluctuations,, economic woes etc) and even
international ones (SARS, two Gulf wars). But the COVID-19 pandemic
changed all that. Being a global industry offered no protection from a global
pandemic; conversely it exposed sector stakeholders to it on all fronts.
Global tourism suffered its worst year on record in 2020, with international
arrivals dropping 74 percent year-on-year, according to the United Nations
World Tourism Organization (UNWTO). Destinations worldwide welcomed 1
billion fewer international arrivals in 2020 (down to 409 million) than in the
previous year due to the COVID-19 crisis, the related fall in demand and
widespread travel restrictions.
With passenger traffic collapsing at most of the world’s airports, travel retail
was robbed of its bloodline through most of 2020 and to a lesser but still
challenging extent in 2021 (a marginal increase to 454.8 million visitor
arrivals).
The pandemic represented the most severe and sustained crisis in travel
retail industry history. A global market that went into freefall with one
remarkable regional exception, Hainan. More of that later in this paper.
? 2023 KPMG Advisory (China) Limited, a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Printed in Chinese Mainland.
4Market recovery 2022-2023 and beyond
As 2022 progressed, borders all around the world steadily opened. By the
end of the year, international visitor arrivals had risen to 917 million, a
comparatively modest -37% shortfall compared to 2019 –However, arrivals
to Asia lagged badly at -77% compared to the pre-pandemic period, largely
thanks to the tight border constraints in Mainland China, Taiwan, Hong Kong
and Macau.
That all changed in early 2023 as Beijing lifted its COVID-19 and travel
restraints with the Hong Kong and Macau Special Administrative Regions
mirroring the response.
Based on UNWTO''s forward-looking scenarios for 2023, international tourist
arrivals could reach 80% to 95% of pre-pandemic levels this year, depending
on the extent of the economic slowdown, the ongoing recovery of travel in
Asia and the Pacific and the evolution of the crisis in Ukraine, among other
And as outbound Chinese factors.
travel market normalizes,
Even more bullishly, in February 2023 the International Civil Aviation
Organization (ICAO) predicted a “complete and sustainable recovery” in air
travel this year, with volumes expected to surpass pre-pandemic levels.
will Hainan
ICAO said that after a near-three year downturn, passenger traffic in 2023 is
set to return to pre-pandemic levels on most routes by the first quarter, and
to be +3% higher than 2019 levels by the end of the year.
suffer as a
The big question for the travel retail sector – internationally and in Hainan – is
what will happen in terms of the outbound Chinese travel market. And as it
result?
normalises, will Hainan suffer as a result?
The following factors suggest not:
01
Passport ownership:
According to CGTN, around 10% of China’s 1.4 billion population have
passports. That means 90% of people can currently only travel – and shop
duty free – domestically. Also, a significant number of citizens now hold
expired passports and visas after such a lengthy suspension of issuances
and renewals.
02
Traveller confidence:
When it comes to Chinese travel and spending, a global return to pre-
pandemic numbers is going to take considerable time — especially
considering the impact COVID had on consumer confidence about the safety
of foreign travel. As capacity is ramped up, international flights remain
expensive.
03
Big-picture dynamics:
In line with central government policy, the long-term trend towards
repatriation of luxury spending from oversea is positive news for Hainan.
? 2023 KPMG Advisory (China) Limited, a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Printed in Chinese Mainland.
504
Natural and man-made attractions:
Hainan’s attractions, both natural and man-made attractions are compelling.
A pristine natural environment combined with numerous tourist attractions,
fast-improving tourism infrastructure and serves on the one hand and world-
class shopping (and, increasingly, dining and hotels) on the other. The latter
is bolstered by the world’s highest duty free allowance (CNY100,000
annually) and the habit of domestic duty free shopping that has formed since
2011 and accelerated through the pandemic.
05
Geographic proximity:
In an uncertain world, Hainan offers an easy and safe travel option with no
linguistic or cultural barriers.
06
Hainan’s Free Trade Port programme:
This extraordinarily ambitious long-term programme continues to attract
investment and services to the island province. Tourism is a key tenet of the
programme and within that sector duty free shopping is an integral element.
As witnessed by the opening of CDF Haikou International Duty Free
Shopping Complex and Wangfujing International Duty Free Harbour City in
Wanning, heavy investment continues to be poured into the sector. This
suggests a robust confidence in the future of the business.
07
Enhancements to the duty free shopping policy:
Continued enhancements of the offshore duty free pricing over recent years
– most notably the big increase in the annual allowance and number of
categories in July 2020 – have given the sector tremendous momentum. We
expect continued favourable official treatment in the years ahead to help
maintain the sector’s competitive edge. This level of government support –
unrivalled in the duty free industry worldwide – manifested itself again in
March 2023 with crucial changes approved by the State Council to the duty
free shopping pick-up policy. The enhanced policy is designed to make
shopping easier and more immediate for consumers and ease logistical
constraints for retailers. The two key principles of the new policy –
‘Guaranteed pick-up’ and ‘Buy and pick-up’ – will simultaneously boost
shopping convenience and overall sales.
This report considers Hainan’s prospects within that improving global
context; examines how it has performed during the crisis; and evaluates its
prospects in the years ahead.
? 2023 KPMG Advisory (China) Limited, a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Printed in Chinese Mainland.
6The global duty-free industry in numbers
According to Generation Research, the global travel retail & duty-free
All regions were adversely
industry was worth US$86.4 billion in 2019, up +10% over 2018. The same
affected in 2020 and 2021.
source’s 2020 and 2021 figures, though, reveal the brutal impact of the
Except one.
pandemic with worldwide sales collapsing by -47.6% to just US$45.3 billion
in 2020, followed by a +25.6% year-on-year rise from a low base in 2021 to
US$55.3 billion. 2022 figures are not yet available.
Hainan
All regions were adversely affected in 2020 and 2021. Except one. Hainan,
where sales rose +127% year-on-year in 2020 and, remarkably, by a further
+84% in 2021.
For the purposes of assessing the industry’s post-pandemic future, we
believe 2019 serves as the appropriate global benchmark. We anticipate a
strong year in 2023, with some retailers exceeding 2019 levels – notably
Dubai Duty Free, historically the world’s largest single airport retail operation.
After exceeding targets in Q1 2023, Dubai Duty Free is projecting all-time
high sales of US$2.2 billion to US$2.3 billion this year, well ahead of the
2019 record of US$2 billion.
The charts below, courtesy of Generation Research, show the 2019 (pre-
pandemic) and 2021 (mid-pandemic) breakdown of global duty-free sales by
region and product category. They also paint a revealing picture of the
impact of the pandemic.
2019 regional breakdown 2021 regional breakdown
Asia Pacific 53.6%
Asia Pacific 68.2%
Europe 24.5%
Europe 16.0%
Americas 13.6%
Americas 8.4%
Middle East 7.3%
Middle East 6.6%
Africa 1.0% Africa 0.8%
Source: Generation Research
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Printed in Chinese Mainland.
72019 category breakdown 2021 category breakdown
Fragrances & cosmetics 43.7% Fragrances & cosmetics 57.0%
Wines & spirits 14.8% Wines & spirits 11.2%
Fashion & accessories 13.3% Fashion & accessories 10.6%
Tobacco goods 8.6% Tobacco goods 6.5%
Watches, jewellery & fine writing 7.4% Watches, jewellery & fine writing 6.1%
Electronics, gifts & other 6.5% Electronics, gifts & other 5.1%
Confectionery & fine food 5.8% Confectionery & fine food 3.5%
Source: Generation Research (Contact@Generation.se)
Duty free & travel retail sales by region 2009–2021 (in US$ millions)
Region 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Asia Pacific 10,295.2 13,000.2 16,665.6 19,902.2 22,317.9 24,729.4 25,294.4 27,375.3 30,827.3 38,831.9 46,370.4 32,285.2 37,723.3
Europe 16,176.1 16,758.8 18,910.4 19,272.3 20,139.3 20,581.9 18,856.7 18,732.9 20,060.7 20,802.7 21,174.8 6,437.3 8,861.5
Americas 7,605.2 8,702.7 10,280.8 10,855.7 11,162.5 11,725.3 11,276.4 10,853.4 11,655.2 11,799.8 11,728.0 4,048.7 4,632.1
Middle
3,466.4 4,026.9 4,446.1 5,005.8 5,560.6 5,867.3 5,810.8 5,573.3 5,982.7 6,362.8 6,290.9 2,174.7 3,665.2
East
Africa 657.2 711.3 697.0 764.0 819.7 848.4 761.7 778.1 786.9 808.6 879.4 316.4 450.3
World
38,200.0 43,200.0 51,000.0 55,800.0 60,000.0 63,752.3 62,000.0 63,313.0 69,312.9 78,605.7 86,443.5 45,262.3 55,332.4
total
Source: Generation Research (Contact@Generation.se)
Duty free & travel retail sales by product category 2009–2021 (in US$ millions)
Category 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Fragrances &
10,708.0 12,060.1 14,344.1 15,793.7 17,260.3 19,289.5 19,763.5 21,464.4 25,605.9 31,324.1 37,769.9 27,173.3 31,513.1
cosmetics
Wines & spirits 6,681.9 7,367.8 8,432.6 9,091.0 9,862.3 10,437.0 10,150.7 10,463.3 11,350.7 12,165.8 12,769.7 3,662.5 5,882.4
Fashion & accessories 4,761.5 5,792.2 7,007.4 7,955.7 8,755.2 9,272.9 8,998.3 9,128.9 9,540.9 10,806.2 11,459.3 5,042.2 6,211.5
Tobacco goods 6,006.0 6,416.1 7,300.9 7,626.8 7,851.8 7,908.9 7,353.7 7,228.8 7,229.6 7,827.1 7,453.5 2,649.9 3,352.2
Watches, jewellery &
3,589.2 4,073.3 5,139.2 5,767.8 6,210.8 6,601.8 5,933.9 5,435.4 5,672.1 6,022.7 6,355.5 2,958.3 3,620.1
fine writing
Confectionery & fine
3,167.1 3,503.6 3,941.7 4,376.6 4,745.1 5,079.6 4,875.3 4,791.5 4,993.4 5,129.3 5,056.2 1,606.7 1,920.0
food
Electronics, gifts &
3,286.3 3,987.3 4,834.1 5,188.5 5,314.6 5,162.6 4,924.7 4,800.8 4,920.2 5,330.4 5,579.4 2,169.4 2,833.1
other
World total 38,200.0 43,200.0 51,000.0 55,800.0 60,000.0 63,752.3 62,000.0 63,313.0 69,312.9 78,605.7 86,443.5 45,262.3 55,332.4
Source: Generation Research (Contact@Generation.se)
? 2023 KPMG Advisory (China) Limited, a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Printed in Chinese Mainland.
8Duty free & travel retail sales by region 2009–2021 (in US$ millions)
50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Asia Pacific Europe Americas Middle East Africa
Source: Generation Research (Contact@Generation.se)
Duty free & travel retail sales by product category 2009–2021 (in US$ millions)
50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Fragrances & cosmetics Wines & spirits Fashion & accessories Tobacco goods
Watches, jewellery & fine writing Confectionery & fine food Electronics, gifts & other
Source: Generation Research (Contact@Generation.se)
? 2023 KPMG Advisory (China) Limited, a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Printed in Chinese Mainland.
9By 2021, Asia Pacific accounted for 68.2% of worldwide sales – up sharply
from 53.6% in pre-pandemic 2019. With much of the duty free world in
hiatus, this transformation was driven dominantly by the Hainan offshore
duty-free sector, referred to as ‘the lighthouse of travel retail’ by The Moodie
Davitt Report.
Also note the sharp rise in category market share for cosmetics and
perfumes, up from 43.7% in 2019 to 56.9% in 2021. This is a direct
reflection of Hainan’s influence where cosmetics generally and skincare
specifically are the dominant category {given the rapidly growing Chinese
interest in perfume, we also expect to see Hainan account for a growing
share of that category in the future}.
Preliminary Top 3 Travel Retailer rankings 2021 (By turnover, € million)
China Duty Free Group
9,369
Lotte Duty Free 4,046
The ShillaDuty Free
3,966
Source: The Moodie Davitt Report
Note: Figures translated from local currency to Euros at 31 December 2021 exchange rates.
? 2023 KPMG Advisory (China) Limited, a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Printed in Chinese Mainland.
10The Hainan success story
Despite its 2022 challenges due to the COVID-19 situation, Hainan’s
Hainan’s offshore duty free
offshore duty free sector ranks as the global travel retail sector’s singular
st
success story of the 21 century.
sector rose by +127% and
+84% respectively through
Although now ranking as the number one duty free market for many leading
2020 and 2021 – in both
beauty houses, it should be remembered that the business is little more
than a decade old. It has grown from small beginnings – a single shop in
cases from an
Sanya – to a multi-billion dollar industry featuring some of the world’s finest
(and certainly biggest) duty free stores.
all-time record
As mentioned, Hainan’s offshore duty free sector rose by +127% and +84%
respectively through 2020 and 2021 – in both cases from an all-time record
high base.
high base.
Despite a COVID-driven slowdown in late 2022, when stores in Sanya were
closed for several weeks and those in Haikou were also affected, the market
has rebounded strongly in early 2023 following the lifting of COVID-related
travel constraints and central government’s successful handling of the crisis.
The whole sector has benefited time and again since 2011 from supportive
government policies, most notably on July 1, 2020 when the annual offshore
duty-free shopping allowance was tripled to RMB100,000. Simultaneously,
the number of categories was extended from 38 to 45 (including cell phones
and alcohol, the latter with a 1.5 litre per trip allowance); the previous single
purchase limit of RMB8,000 (USD1,250) was removed; and the limit on
cosmetics skus (or stockkeeping units) raised from 12 to 30.
As we noted in last year’s report, any chronicling of travel retail industry
history, that policy decision will surely rank as one of the most far-sighted,
consumer-friendly, business-supporting measures of all time. The financial
results have been plain to see.
That support has manifested itself in the arrival of several new licence-
holders since late 2020. There are 12 duty-free shops in Hainan covering
Sanya, Haikou, Qionghai and Wanning. The business area of offshore duty-
2
free shops across Hainan exceeds 500,000 m , and the number of brands
settled in exceeds 1,500.
In one of the biggest changes to the offshore duty free shopping policy,
major changes were made to the pick-up policy for duty free purchases in
March, which will be taken effect since 1 April 2023. Previously, consumers
could only order their shopping and retailers had to package and deliver to
the airport, seaport or designated self-collection point before the consumer
left the island.
The improvements, designed to bring much greater convenience to
shopping on the island, are broadly categorised into two key areas –
‘Guaranteed pick-up’ and ‘Buy and pick-up’. The measures are also certain to
increase the conversion rate of visitors to shoppers and reduce logistics
costs.
‘Guaranteed pick-up’ – strictly regulated in terms of inspection at departure –
is expected to boost sales of top luxury items such as watches & jewellery.
While with the implementation of the immediate buy and pick-up policy,
tourists can directly purchase [duty free] a limited amount of fragrances,
bags, clothing, silk scarves, sunglasses, belts, sporting goods and other
products every time they leave the island.
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Printed in Chinese Mainland.
11Government support for the offshore duty free industry is once again being
underlined by the hosting of the third annual China International Consumer
Products Expo (Hainan Expo) on April 11-15. The Expo, already established
as one of Asia’s premier exhibitions, recognises that offshore duty-free is a
key component of Hainan’s Free Trade Platform programme. The
programme, considered of key national importance, will see an island-wide
Free Trade Port system focused on trade and investment liberalisation
created in the Hainan FTP by 2025 (with full maturity by 2035).
This hugely ambitious event offers international brands and service
companies a crucial opportunity to showcase their wares in China and,
conversely, for national and local Chinese brands to promote themselves to
an influential global audience.
The offshore duty free industry is a symbol of the Chinese government’s
ambition to retain travelling spend inside the country and to boost domestic
consumption. As a market Hainan has its own rules, its own unique
customer base (predominantly Chinese) and is an integral component of a
“mega-trend” – to maximise Chinese consumption at home. Hainan
offshore duty free plays a dual role for brands – it is a big volume and value
channel in its own right, but it also offers an incalculably priceless showcase
to consumers across the vast Chinese nation. As such, the Hainan success
story seems set to run and run.
Battle of the giants: Hainan vs Korea
Hainan’s burgeoning offshore duty free sector success of recent years
presents an interesting comparative case study with the world’s biggest
duty free market – the Republic of Korea. The prolonged COVID-19 crisis
affected both markets at various times in various ways.
Whereas Hainan flourished during 2020 and 2021 as Chinese citizens,
unable to travel overseas, flocked to the island province, South Korea was
robbed of its commercial bloodline of recent years – the travelling China.
With Korean nationals being unable to travel, Korean duty free became
overwhelmingly (90%+) about selling to large-scale daigou traders, a reliance
that has left the sector worryingly vulnerable after Korea Customs Service
(KCS) moved in late 2022 to curb excessive commission payments to travel
agents facilitating the daigou business.
Hainan offshore duty free stores generated sales of CNY60.17 billion
(US$9.47 billion) in 2021, an +84% increase year-on-year. The results include
duty free sales of CNY50.49 billion (US$7.94 billion), up +83% year-on-year,
with the balance being accounted for by tax paid sales.
In 2022, affected by the sporadic COVID-19 outbreaks on the Mainland – and
at one point in Hainan – the offshore duty free sector was hit hard and did
not complete the projected target.
However in 2023, Hainan’s expected target is to surpass CNY80 billion in
sales – up by a third on the record 2021 results. In the first five days of this
year''s Spring Festival holiday (January 21-25), the province’s 12 off-island
duty-free stores recorded total sales of CNY1.685 billion, up +20.03% over
the first five days of the Spring Festival in 2022 and by +325% over the first
five days of the pre-pandemic Spring Festival in 2019.
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Printed in Chinese Mainland.
12In South Korea the duty free market was flat in 2022, easing by -0.6% year-on-
year in 2022 to KRW17.67 trillion (US$13.62 billion). The performance represents
a -24.12% deficit compared with the record pre-pandemic year of 2019.
As a result of the KCS warning about perceived excessive commissions paid to
travel agencies, Korean duty free sales in January 2023 slumped by -30% year-
on-year to KRW797.4 billion (US$603.6 million). The figures from the Korea Duty
Free Association show a -41% decline month-on-month from December 2022.
The impact has been particularly severe in the key cosmetics category, which
accounted for more than 70% of total Korean duty free market sales last year.
While February sales rebounded by almost +37% month-on-month to KRW1.09
trillion (US$838.9 million) in February, driven by a rebound in the daigou spend
(the KCS view is not – yet at least – enshrined in law), many informed observers
believe some form of control over the daigou business will be introduced. The
February figures show a drop in total shopper numbers but a rise in spending
volume, implying a sharp increase in sales to daigou resellers.
As noted in the 2022 Hainan Travel Retail Market White Paper: A Powerhouse of
the New Retail, Korea has largely become a Chinese market of sorts – a one-
nationality dependence that has Korean travel retailers deeply concerned and
seeking means to diversify. The return of outbound travel – and therefor
outbound shopping – by Koreans will help normalise the sector but great
uncertainly lingers over a market that for so long reigned supreme globally.
In contrast, as memories of the COVID-19 crisis recede, Hainan offshore duty
free’s future looks very positive. Over the past five years the sector has
generated extraordinary sales of some CNY130+ billion and the industry has a lot
of growth potential yet.
Hainan offshore duty free sales v South Korea duty free sales 2015-2022
(in US$ billions)
0.842
2015
8.1
0.997
2016
10.5
1.2
2017
12.8
1.3
2018
17
1.9
2019
21.3
5
2020
13.2
9.47
2021
14.7
7.082
2022
13.62
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
Source: The Moodie Davitt Report
Notes: Includes US$1.53 billion tax/duty paid
Notes: At prevailing exchange rate, includes US$2.008 billion tax/duty paid,
Hainan South Korea
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13To the future: Opportunities and challenges
In this White Paper, we have addressed the likely impact on Hainan’s
offshore duty free sector as Chinese nationals begin again to travel freely to
international destinations. Our conclusion is clear, Hainan duty free will
continue to grow both in the short and long term.
As noted last year, the Hainan government and its duty free retailers have
used the pandemic well. Outstanding tourism, investment and business
promotion by fine organisations such as the Hainan Provincial Bureau of
International Economic Development (Hainan IEDB), complemented by the
top-class work of media houses such as Hainan Hinews Media Co and
others, mean that the virtues of shopping duty free in Hainan are well-known
throughout China.
Last year we predicted more preferential policies to further boost the
island’s duty free industry and we were proven right, notably by the far-
sighted March 2023 introduction of the enhanced ‘Guaranteed pick-up’ and
‘Buy and pick-up’ policies.
Heavy investment in tourism infrastructure on the island is happening at
pace – from highways to hotels, retail to restaurant. The ‘culture + business
+ tourism’ formula is surely the key to Hainan’s future success as Chinese
consumers increasingly seeks experiential rather than simply transactional
encounters.
We believe therefore that in line with President Xi’s description of
international tourism is an important “business card” for Hainan Free Trade
Port, the offshore duty free sector has a golden future.
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Printed in Chinese Mainland.
1402
Evolvement of
China consumers
in the post-
pandemic era
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Printed in Chinese Mainland.
15The core trends currently impacting China''s
high-end goods spendings
Currently, China’s high-end product market is impacted by economic growth,
the COVID-19 pandemic, sustainability, and technological advancements and
so on.
01 02
Slowing economic growth and The impact of the COVID-19 pandemic
stimulation policies
– Drop in consumer confident levels during
– Moving towards sustainable rates after
the spread of Omicron variant in 2022
decades of exponential growth
– Growing consumer demand for high quality,
– “Dual circulation” economy policy
uniqueness and speciality products and
encourages exports
services
– Local duty free sales come to rescue during
– Consumers “live in the moment”, likelihood
the pandemic
for more impromptu purchases
03 04
Increased awareness of sustainability Digital technology has underpinned
China’s rise
– Policy push from the government to
– Increasing adoption of internet and social
encourage sustainability / “green” topics
media
– Rise of second-hand clothing market in China
– Blurring boundaries between online and
– Increasing demand for sustainable travel
offline, leading to demand for omni-channel
– Rising usage of advanced technology to
facilitate purchases e.g .VR / AR
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Printed in Chinese Mainland.
16Tokyo
Seoul
Where to buy
Hainan, Hong Kong and Macau remain popular
travel destinations for Chinese travelers pre &
post pandemic
Based on recent surveys and outbound travel patterns since the lift of travel
bans, in 2023, Chinese tourists are most interested in similar destinations as
those in 2019 (pre pandemic) 1
? Mainland travellers made up 80% of total number of inbound tourists in
Hong Kong & Macau, 40% of South Korea and Japan respectively2
? Number of Mainland tourists arriving at Hong Kong & Macau accounted
for 46% of total departures in China3
? Benefiting from unique tourism resources and the rapid development of
duty free market since 2020, Hainan is estimated to be a hot travel
destination even after the border is open
? Milan, Hainan, and Hong Kong are Chinese luxury consumers most
preferred destinations for traveling and purchasing luxury items (in no
particular order).
Note:
(1) 2019 data is leveraged since recent surveys found that the travel destinations in 2023 is highly
similar to those in 2019;
(2) (2) Gen-MZ refers to a pairing of two population groups: Millennials (born 1981-1995) and
Generation Z (born 1996-2005)
1,2,3
Source: Euromonitor, MasterCard and ctrip – China Cross border Travel Consumption Report
2019, Official government statistics, Tourmis.info, World Bank, KPMG analysis
Preferred travel destination by luxury consumers (displayed by frequency)
Chengdu
Milan
Hainan
Singapore
Macau
Sydney
London
Hong Kong
Paris New York
Source: Luxury Redefined – Building trust with Chinese consumers through authenticity and integrity, KPMG China, DLG, 2023 Feb, KPMG analysis
? 2023 KPMG Advisory (China) Limited, a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Printed in Chinese Mainland.
17Who to buy
the major driving force of high-end products
‘consumption is high-end shoppers’ habit of
luxury items purchase
According to TMI''s 2021 survey on luxury consumers, 42% of China''s luxury
spending comes from the high-end consumer group whose net assets
exceed 10 million yuan, accounting for only 0.3% of China''s total population.
The macro environment and the pandemic have had a minor impact on the
purchasing behaviour of high-end consumers buying luxury items.
Impacts from COVID-19 Reasons for domestic luxury consumption
Spending level Daily consumption is the main
01
scenario
? Overall, total consumption of luxury is not
affected by macro environment .
? Travel retail only accounts for small amount
of luxury consumption
Shopping channel
Urgency to get luxury products
? Daigou and travel retail overseas decrease
02
? Luxury products are exclusive, some are
? Online channel slightly increases
limited editions that high-end shoppers want
? Domestic shopping mall is still important
to buy immediately
Shopping behaviour
Smaller price gap compared with
? More cautious in buying luxury products,
03 overseas market
consider whether the products are really in
? The government has issued tax reduction
need before purchase
policies on luxury products
? The development of Hainan duty-free market
Product category
has also captured more consumption returns
? Prefer value-preserving products
? Prefer classic ones
Source: consumer research, KPMG analysis
Based on above data, we can see that, high-end shoppers have strong
confidence on future economic environment, and their spending level will
not be affected in short term. A large amount of luxury product consumption
can retain domestically if local shopping malls can meet high-end shoppers
expectations ：
? Luxury product consumption will encounter a certain amount of outflow
when the border reopens
? However, daily luxury consumption of high-end shopper may not be
greatly affected
? High-end shoppers hope local malls can satisfy their needs on
considerate service and quick access to new products
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Printed in Chinese Mainland.
18High-end shoppers are confident of future
economic environment and their short-term
consumption level remains unaffected
The travel restrictions and global supply chain disruptions during the
China''s high-end
pandemic have hindered Chinese consumers from purchasing high-end
products abroad or through daigou channels. The purchasing behaviour of
shoppers become more
China''s high-end shoppers has been affected and changed by the three-year-
favourable with online
long pandemic. China''s high-end shoppers become more favourable with
and offline omni channel
online and offline omni channel integration for purchasing. China is expected
integration for
to become the world''s largest consumer market for personal luxury items in
the future. In the current macroenvironment, Hainan is expected to cater to
purchasing
the trend of high-end product consumption returning to the domestic market,
continuously releasing growth potential, and becoming the preferred
destination for domestic high-end product spending.
Future luxury consumption change
How will your luxury spending level change in next 2-3 yrs? N=38, single choice
Significantly increase
8%
(50% or more)
? High-end customers have positive
Increase
42% attitude to economic environment
(49% or less)
after Covid restrictions lifted
No changes
45%
? Shopping desire increases as high-
Decrease
end customers’ income level
5%
(49% or less)
increases
Significantly decrease
0%
(50% or more)
Luxury consumption channel
How will your luxury shopping channel change after the border reopens? N=38, single choice
Domestically,
76%
? Domestical shopping malls provide
mainly in offline malls
convenience and can fulfil daily
Domestically, online and
16%
luxury consumption demand
offline half each
? During the epidemic, high-end
Mainly abroad 8%
shopping malls built a certain
connection with consumers through
Domestically,
0%
VIP program and close service
mainly online
Percentage of luxury consumption outflow
How much will your luxury consumption outflow after the border reopens? N=38, single choice
Less than
50%
20% ? Luxury consumption outflow is
mainly caused by travel retail
21%-40%
37%
? Shoppers tend to buy luxury
41%-60%
8%
products in overseas mainly
because of price advantage and
61%-80% 3%
abundant product portfolios or
More than
3%
stocks
80%
Source: consumer research, KPMG analysis
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Printed in Chinese Mainland.
19We categorised Chinese consumers into 5
clusters to explain their characteristics and
behaviours ，and identification of core and
emerging luxury consumer "personas"
According to the KPMG China and DLC report Luxury Redefined published in
February 2023, we categorised Chinese consumers into 5 clusters. The
characteristics and demographics of each Chinese consumer group are as
follows ：
Understanding Chinese luxury consumers: The five clusters
Cluster 5:
Cluster 1: Going Cluster 2: Cluster 3: Cluster 4:
Striving for the
global Look at me Fitting in Quality first
greater good
Value conspicuous
Value brand name
Value the ‘greater
luxury clothing and
Value quality life Value sophistication
and origin good’
accessories
Appreciate brand
Choose companies
Buy luxury products
Low understanding Share experiences
heritage, fabric and
that are sustaianble
to display status
of brand nuance on social media
manufacturing
Most prevalent
Most prevalent
Most prevalent Most prevalent Most prevalent
among 25-34 years
among 45+ years among 18-24 years
among 45+ years among 25-34 years
old
old old
old old
Concentrated
Concentrated
Concentrated
Concentrated
Concentrated
among Tier 1 cities
among Tier 2 cities
among Tier 2 cities
among Tier 1 cities
among Tier 1 cities
and Hong Kong
Source: Luxury Redefined , KPMG China, DLG, 2023 Feb, KPMG analysis
Population % of population/ total population (millions)
38%
32%
18%
9%
2%
156 334 309 81 22
Source: Luxury Redefined , KPMG China, DLG, 2023 Feb, KPMG analysis
The clusters are not rigid, Chinese consumers move seamlessly from one
cluster to another 。
In China, consumers are multi-dimensional. This characteristic has amplified
in previous years, due to:
? Rapid development of global perspective
? Easy accessibility information thanks to the advancement of the internet
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20
CharacteristicWe identified five core luxury consumer “personas” in China and two emerging personas with growing
significance as the market matures ：
Persona distribution by consumer mindset cluster
Cluster 5: Striving
Cluster 1: Cluster 2: Cluster 3: Cluster 4:
for the greater
Going global Look at me Fitting in Quality first
good
Luxury
Newcomers
Status Reflectors
Community
Approval Seekers
Luxury
Connoisseurs
Luxury Investors
“New Luxury”
Pioneers
Cultural
Source: Luxury Redefined , KPMG China, DLG, 2023 Feb, KPMG analysis
Resonators
Luxury Newcomers ：Luxury newcomers are those who recognise and favour foreign brands ，They
01
don''t spend much time researching products and tend to buy well-known brands that are easy to
recognize. They are easily influenced by brand advertising, reputation or spokesperson, and are more
likely to accept promotions, discounts, direct sales from manufacturers, and duty-free shops.
Status Reflectors ：Status Reflectors value products and services with a good reputation and high
02
brand visibility to reflect and showcase their status and wealth. They are likely to be influenced by
information on mainstream social media and in advertisements, such as product placements on TV
shows and in video games.
Community Approval Seekers ：Community Approval Seekers see luxury as a form of social currency
03
that can give a sense of belonging. They are also keen trend watchers. To gain recognition from the
community, luxury purchases are influenced by societal and peer pressure, and there is a heavy reliance
on information from social media and key opinion leaders (KOLs).
Luxury Connoisseurs ：Luxury Connoisseurs value high-quality goods that can demonstrate their
04
unique personality, and are prepared to pay a premium to get what they want. Consumers in this group
have a relatively higher knowledge of luxury brands and an understanding of their differences. They are
more likely to be influenced by social media, direct engagement from brands (e.g. newsletters, text
messages, sales staff engagement), communities and their peers rather than advertisements. This
persona has a higher acceptance of niche brands, while trends and influencers primarily dictate their
purchasing decisions.
05 ''New Luxury'' Pioneers: ‘New Luxury’ Pioneers are consumers who are attracted to new values and
concepts, they are more open to brands that promote new ideas and advanced designs that make a
contribution to society.
Cultural Resonators (two emerging personas): Cultural Resonators are a young cohort of shoppers
06
whose purchasing habits are driven by emotional connections to Chinese culture. Cultural Resonators
see purchasing local brands as a sign of being an ‘insider’ and one that allows them to represent their
heritage.
07 Luxury Investors (two emerging personas): Luxury investors treating luxury products as an alternative
investment vehicle. The products they buy are in high demand and are often limited editions or member-
exclusive pieces.
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Printed in Chinese Mainland.
21Source: Luxury Redefined , KPMG China, DLG, 2023 Feb, KPMG analysis
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Printed in Chinese Mainland.
22As the Chinese market
matures, the importance
of cultural resonators and
luxury items investors is
expected to increase.
However, consumer
behaviour is constantly
changing, and they may
exhibit characteristics of
multiple consumer profiles
at the same time.
According to a survey of
seven consumer profiles,
Milan, Hainan, and Hong
Kong are their preferred
destinations for traveling
and purchasing luxury
items (in no particular
order ）.
Source: Luxury Redefined , KPMG China, DLG, 2023 Feb, KPMG analysis
? 2023 KPMG Advisory (China) Limited, a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Printed in Chinese Mainland.
23We estimate that Chinese consumers will gradually evolve and
dominate in relatively mature consumer clusters by 2030
Based on the survey analysis, purchasing power is a critical factor in the ability to buy luxury items,
which drives the development of consumer mentality, and affects the future development of
Chinese consumers. When consumers are no longer limited by their purchasing power, they have a
certain degree of freedom to expand their purchasing scope from low-level needs to high-level
pursuits. Using GDP forecasts, we can assess the consumption patterns of Chinese consumers and
estimate how they will change in the future according to the trends observed in other countries.
According to the KPMG research report Luxury Redefined published in February 2023，Chinese
consumers generally are in cluster 2 (‘Look at me’) and 3 (‘Fitting in’), while consumers'' attitudes in
most Tier 1 cities are in the fourth cluster (‘Quality first’) or at least approaching it (Figure 15). Most
consumers in Tier 2 cities fit into the second and third clusters, with increased income and
economic development allowing for greater purchasing power and thus a growing appetite for luxury
items.
China''s GDP per capita (adjusted by purchasing power parity) is currently one-third of that of the
United States (Figure 16). Yet, if broken down by city class, China''s GDP per capita for Tier 1 cities is
lower than the United States by just 30 percent, and it is ahead of developed countries such as
Japan and South Korea. Through forecasts based purely on past economic performance, the GDP of
Tier 1 cities could catch up with the US’s current level in 2030, implying that most residents in these
cities will have a consumer mindset in clusters 4 and 5 by 2030.
However, some external factors are also driving a change in consumer mindsets, such as relevant
policies on ESG and brands'' initiatives around consumer education. Some of these top-down actions
are pushing consumers to think and act differently than they would have without this influence,
leading to higher awareness and different purchasing behaviours. This will shorten the required time
for consumers to transition from the status to the more advanced clusters 4 and 5 (''Striving for the
greater good''). Therefore, it is thought that the mentality of consumers in Tier 1 cities in China may
only be about three to five years behind the consumer mindsets seen in the US market, while the
overall Chinese market could be about five to eight years behind.
Population
mn / % to total
2022 2025 2030
population
Stage 1:
156 17% 96 47
Foreign is good 11% 5%
Stage 2:
Showing off social
334 230 25% 112
37% 12%
status
Stage 3:
Community & 24%
309 34% 346 38% 216
Belonging
Stage 4:
81 170 316
9% 19% 35%
Pursuing Quality
Life
Stage 5:
25%
65 224
22 2%
7%
Purpose & Value-
driven
Source: Luxury Redefined , KPMG China, DLG, 2023 Feb, KPMG analysis
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Printed in Chinese Mainland.
24Buy from whom
Chinese consumers are expecting retailors
with share more social responsibility
Leading socially responsibility actions consumers want to see from retailers.
Leading socially responsibility actions consumers want to see from retailers
Percentage of respondents who believe retailers should take the following actions
Source: Retail Recharged: Engaging consumers with technology, purpose and trust - 2022 Survey. KPMG China, GS1 Hong Kong,HSBC, KPMG analysis.
In summary, all operators in the Hainan travel retail market, whether
they are duty-free operators or conventional retailers, should focus on
the consumer profiles of Chinese consumers and the possible changes
in their purchasing behaviours and habits in the future to prepare for
the development of a more active and diversified Hainan travel retail
market after seal-off.
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Printed in Chinese Mainland.
2503
2023 is the ideal time
when we set the
course for victory for
Hainan!
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Printed in Chinese Mainland.
26Hainan plays a key role in the global travel retail
market
As mentioned, with the continuous support and investment from the
government, investors remain optimistic about Hainan''s travel retail market.
We believe that offshore duty-free industry can be considered as Hainan’s "
gilded signboard ", will continue to achieve more impressive results in the
future.
(1)
Breakdown of worldwide travel retail market ( %, 2022-2028)
Rest of world CN onshore Hainan
CAGR
241
21%
199
41%
6%
19%
165
+29%
5%
17%
136
51%
5%
16%
113
4%
14% 74%
4%
85 76%
78%
13%
4%
26%
80%
82%
53
83%
12%
2%
86%
2022 2023 2024 2025 2026 2027 2028
Note: (1) Assumed constant growth rate from 2026-2028; assumed Hainan’s share of China DF to remain constant, taking up ~ 79-80% of China market
Source: Booking.com – Travel Confidence Index Report 2022, HKEX, KPMG – Hainan Travel Retail Whitepaper, KPMG market model, Statista, Trip.com,
KPMG analysis
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Printed in Chinese Mainland.
27With the continuous investment in Hainan market,
consumers'' perception of Hainan market are
constantly evolving and becoming more better
Consumer purchasing concepts are constantly evolving, and consumer
behaviour is also constantly upgrading, from "overseas Shopping" to "Hainan
Shopping."
Consumer perception evolution
Tourism in Hainan
"Overseas Shopping" to "Hainan Shopping"
Q: Even if outbound
62% ? The pandemic has accelerated the reversal of overseas
tourism resumes, still
shopping trends back to domestic tourism
relatively
plans to return to Hainan
certain / very
to shopping
? Driven by the new policies, brands, products categories,
certain
# of visitors and consumption has shown increasing
trends in Hainan
Change in Hainan DF sales mix
"Consumption upgrade"
10.0%
20.0%
? The removal of single-item DF allowance cap
15.0%
50.0%
65.0%
(RMB 8,000), and the increased per-visit purchase
40.0%
quantity limit drives the change of tourists’ DF
shopping behaviour
2019
? Dur to rising incomes, Chinese people have
Perfumes & Cosmetics
2025E
become more interested in buying high-end and
Luxury goods luxury products
Others
Source: UBS, GUOSEN SECURITIES, KPMG analysis
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Printed in Chinese Mainland.
28Market image in Chinese consumer
? 2010-2020: Hainan Duty Free Industry Development -
New Shopping
"Golden Decade“
Heaven
? 2020-2030: Offshore duty-free + island duty free – “Dual
drive”
Tourist Paradise
? China''s second largest island with many bays and 20+
“China’s Hawaii”
high-end hotels
? Haihua Island - the world''s largest flower-shaped artificial
tourist island
Hainan FTP
Wellness Paradise
? Boao Lecheng Medical Tourism Pilot Area will be built with
11 key parks, vigorously introduce medical and health
resources and enterprises
With the liberalisation of investment policy and more investment of foreign capitals, Chinese consumers
increasingly believe that Hainan FTP is High-end international tourism & shopping centre
Tax incentives and favourable policies will attract more
brands to start carrying out a Hainan long-term strategy
Key objectives How we will achieve it
Take advantage
? Set up Hainan trading entity and bonded warehouse allowing;
of the ‘seal-off’
─ Import duty exempted starting from seal off
giving greater
─ Streamlines indirect tax into ‘Sales Tax’: ONLY B2C is levied with single-
margin and more
digit tax rate
control on pricing
? Hainan entity will enjoy 15% CIT due to the substance of our business;
─ Before seal-off, 15% Corporate Income Tax for encouraged industries
Lower tax burden with business substance
─ From the year of seal-off to 2035,15% Corporate Income Tax applies to
ALL sectors with business substance (except those on Negative List)
? Team members will enjoy reduced individual tax costs in Hainan;
Attract more
─ Before 2025, 15% cap for Individual income Tax
talent through
─ Before 2035, it is levied at 3%, 10%, 15% for individuals residing in
lower tax
Hainan over 183 days per annum
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Printed in Chinese Mainland.
29The island seal-off will be the biggest driver of change
towards Hainan’s future as a leading retail destination
VAT and Consumption Tax to be simplified and streamlined into Sales Tax.
According to the top-level design concept of Sales tax, it would be levied in
the final B2C stage, meaning the prior B2B flows free of turnover tax. This
could be a landmark driver of wholesale and retail business for those
entering Hainan.
Sales Tax Scheme in Hainan after Seal-off
Sales Tax will
be levied
Goods or service
Goods or service
B2B, no Sales Tax B2C
Enterprise Enterprise
Individual
in Hainan in Hainan
in Hainan
After seal-off, the streamlined tax policy may narrow the gap between
conventional retailers and duty-free operators, allowing brands to have the
opportunity to sell through conventional channels at a more comparable
effective tax rate (with equal profits). Before and after seal-off, we expect
the major tax effects on conventional retailers and duty-free operators to be
as shown in the following figure：
Indirect tax treatment for wholesale and retail business in Hainan
Overseas Hainan
4% Franchise Fee ？
No tariff, import VAT and
Finance
consumption tax
department
DFOs
Purchasin
No VAT
Overseas
g centre in
Subject to tariff, import VAT
suppliers Hainan
and consumption tax
13% VAT
CFTZ General
Visitors or
stores
local citizens
4% Franchise Fee ？
Finance
department
B2B:
DFOs
Purchasi
No tariff &
No sales tax
ng centre No sales tax
sales tax
Overseas
in/outsid
suppliers
e Hainan
B2C X% sales tax
General
CFTZ
stores Visitors or
local citizens
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Printed in Chinese Mainland.
30
After Seal-off Before Seal-offAfter seal-off, For brands, this would create the opportunity to operate direct owned or
consignment style stores at prices much closer to the DFOs (the main
distinguishing factor as to why they are not able to effectively do this today).
the traditional duty
This will appeal to those luxury and premium brands, and those that want to
get greater control over their end customers and management of their
paid and duty free
brands in the market.
Moreover, after seal-off, the traditional duty paid and duty free market will be
market will be
integrated closely. Brands will need to further consider whether their
operations will become a travel retail managed business or a local market
integrated.
managed business. This will likely be the most difficult question to face
internally, however we have already seen the most strategic brands
beginning to see how they can benefit from Hainan as an overall platform
coordinated with effective resources which is not limited to being run by one
unit or another.
For DFOs the key question is how they can position themselves. Will they
Brands should consider
remain in what is mostly a wholesale style relationship with their brands, or
how to benefit from Hainan
will they seek alternate models to attract specific brands and in turn drive
as an overall platform
greater traffic into their locations? Further, are their set-ups agile enough to
work with these different models, and if not, what will they need to achieve
coordinated with this agility?
All of this needs to be considered against the backdrop of the general
effective resources
investment going into Hainan from other retailers and developers who now
may offer alternate points of sale to traditional DFOs. This investment will
bring greater overall benefit to the market and will offer more choice to
brands and customers alike in their retail experience in Hainan.
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Printed in Chinese Mainland.
312023 is the ideal time when we set the course for
victory for Hainan!
With the development of Hainan''s retail industry, we have not only seen a
variety of duty-free retail models, but also witnessed the vigorous
development of Hainan''s travel retail market. The future is full of
opportunities, and 2023 will be an important start step for travel retail market.
So, how can we seize this opportunity and achieve success in this retail
market?
01 02 03 04
Keep the dialogue Establish the keystone Agile Operations to Digitalization
open and transparent for post-seal-off retail connect Hainan with Empowers Hainan to
models Mainland Market Create Seamless
– The government
Omnichannel
timely and promptly
– After seal-off, brands
communicates the Consumer Experience
can establish their
– Provide consistent
policy direction that
own duty-free stores
loyalty programs,
– Proactively respond
the market is keen
without paying import
points that can be
to the changes in
to know, managing
duties. The cost of
used universally, and
consumer behaviour
market expectations
indirect tax has
information sharing
in the post-pandemic
for business models
greatly decreased
on consumer profiles
era, with consumers
on the island after
compared to that
for Chinese
prioritizing online
seal-off.
before seal-off, which
consumers visiting
channels to obtain
puts brands on the
Hainan.
– Enterprises actively product information,
same level playing
maintain good while physical stores
field with duty-free
– Balance the pricing,
communication with
remain a key bridge
operators.
sales, employees,
key policy makers
to experience brand
shared supply chain,
and professional culture and historical
– Enterprises can
demand planning,
intermediaries such heritage.
consider training local
data operations,
as the central
teams in advance, as
organization structure
– Leverage the
government, Hainan
well as the
settings, and
advantage of
province and cities,
strengthening of local
cooperation
Hainan''s data flow
and actively explore
supply chain
mechanisms for the
policies and deploy a
diversified business
management, sales
two markets of travel
fully integrated online
layout after seal-off.
channels and pricing,
retail and mainland
and offline omni-
government relations
retail market.
channel experience to
and other related
meet consumer
capabilities.
demand.
? 2023 KPMG Advisory (China) Limited, a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Printed in Chinese Mainland.
32Final word
Ultimately the seal off will help to further change Hainan for the better and its
why we have invested our time and capabilities to understand the key factors to
be successful in the market. KPMG are the leading advisors in Hainan, working
with the largest number of brands and DFOs on the most innovative business
models. Contact us to help you:
? Analyse the current and near future development of Hainan policy and
market
? Identify the applicability of policies to your business decisions in preparation
for Hainan market entry
? Adopt an appropriate Hainan entry strategy, including holding structure,
vehicle options (branches and companies) and business models (service,
trading or mix function, etc.)
? Select the effective plan for implementation to achieve the strategy
objectives
? Identify the appropriate growth strategy from POS type to location selection
? ? 2023 K 2023 KP PM MG G A Adv dviis sor ory y ((C Chi hina na)) Li Lim miit ted, ed, a a lliim miit ted l ed liia abi billiit ty y c com ompa pany ny iin C n Chi hines nese M e Ma aiinl nla and a nd and nd a a m mem ember ber f fiir rm m of of t the he K KP PM MG G gl globa oball or orga gan niis sa at tiion of on of iindependent ndependent
m mem ember ber f fiir rm ms s a af ff fiilliia at ted w ed wiit th h K KP PM MG G I Int nter erna nat tiiona onall Li Lim miit ted, ed, a a pr priiv va at te E e Engl ngliis sh h c com ompa pany ny lliim miit ted ed by by gua guar ra ant ntee. ee. A Allll r riight ghts s r res eser erv ved. ed. Pr Priint nted ed iin C n Chi hines nese M e Ma aiinl nla and. nd.
33 33Contact us
Nicole Zhang Martin Moodie
Office Senior Partner, Hainan Founder & Chairman
KPMG China The Moodie Davitt Report
P: +86 (898) 6525 3230 P: +44 7710 435683
W: www.kpmg.com.cn W: www.moodiedavittreport.com
E-mail: nicole.ll.zhang@kpmg.com E-mail: martin@MoodieDavittReport.com
Dermot Davitt
Raymond Lam
President
Partner, Head of Consumer Markets
The Moodie Davitt Report
KPMG China
P: +353 851379305
P: +86 (20) 3813 8388
W: www.moodiedavittreport.com
W: www.kpmg.com.cn
E-mail: dermot@MoodieDavittReport.com
E-mail: raymond.lam@kpmg.com
Willi Sun Eileen Lin
Partner, Head of Advisory Services, Senior Manager, Tax Service, Hainan
Consumer Markets
KPMG China
KPMG China
P: +86 (898) 6525 3282
P: +86 (21) 2212 3740
W: www.kpmg.com.cn
W: www.kpmg.com.cn
E-mail: eileen.lin@kpmg.com
E-mail: willi.sun@kpmg.com
Tina Chen
Associate Director, Advisory Services,
Consumer Markets
KPMG China
P: +852 3927 5948
W: www.kpmg.com.cn
E-mail: tk.chen@kpmg.com
? ? 2023 K 2023 KP PM MG G A Adv dviis sor ory y ((C Chi hina na)) Li Lim miit ted, ed, a a lliim miit ted l ed liia abi billiit ty y c com ompa pany ny iin C n Chi hines nese M e Ma aiinl nla and a nd and nd a a m mem ember ber f fiir rm m of of t the he K KP PM MG G gl globa oball or orga gan niis sa at tiion of on of iindependent ndependent
m mem ember ber f fiir rm ms s a af ff fiilliia at ted w ed wiit th h K KP PM MG G I Int nter erna nat tiiona onall Li Lim miit ted, ed, a a pr priiv va at te E e Engl ngliis sh h c com ompa pany ny lliim miit ted ed by by gua guar ra ant ntee. ee. A Allll r riight ghts s r res eser erv ved. ed. Pr Priint nted ed iin C n Chi hines nese M e Ma aiinl nla and. nd.
34 34kpmg.com/cn/socialmedia
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? 2023 KPMG Advisory (China) Limited, a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation
of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Printed in Chinese Mainland.
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April 2023 launch |
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