Hainan Island: Luxury Opportunity Or a Trap?

What Happened: A new McKinsey & Co. report, Hainan’s $40 Billion Prize: The new battleground for global luxury, predicts that the tropical destination’s duty-free retailing sector will continue to grow post-pandemic, with 62 percent of surveyed Hainan travelers stating they are likely to return to the island even after overseas travel is normalized. The Hainan Provincial Government’s 14th Five-Year Plan estimates the island’s duty-free market will grow tenfold between 2020 and 2025 to $46.5 billion and become one of the world’s largest travel retail locations — thanks to favorable regulations, increased investments from big, local players, and competitive price offerings. 

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The Jing Take: In 2020, beauty accounted for half of all Hainan’s duty-free sales; however, as more brands have opened stores in the tax-free retail hub, consumers have been diversifying their spending there. The report also states that one in three visitors intend to make a fashion purchase on their next trip. But is this good or bad news for global luxury brands? Admittedly, Hainan’s duty-free destination can provide businesses ultra-efficient sales to high volume bargain shoppers, but heritage houses may run the risk of damaging their brand equity, hurting their price positioning, and lastly, harming their direct customer relationships. 

Still, Hainan offers a huge opportunity for luxury Maisons, and very few can avoid the allure of its strong growth potential. However, to prevent diluting brand values, companies should review their merchandise allocation, as well as avoid stocking an abundance of their signature pieces. They should also unify their Hainan Island and mainland consumer databases to enable local stores to retarget Hainan travelers after returning to their hometowns. Meanwhile, the report held strong on the importance of Hainan’s beauty market, stressing that brands should fully embrace this lucrative category without any fears of weakening their brand image. 

The Jing Take reports on a piece of the leading news and presents our editorial team’s analysis of the key implications for the luxury industry. In the recurring column, we analyze everything from product drops and mergers to heated debate sprouting on Chinese social media.

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