How One Brand Tapped Into China’s Booming Duty-Free Market

Key Takeaways:

  • In 2017, the duty-free and travel retail market was valued at $74.9 billion, and estimated to reach $153.7 billion by 2025.

  • In a year, COVID-19 wreaked unprecedented havoc in the industry, killing duty-free and travel retail.

  • Offshore duty-free sales on Hainan island rose to $3.82 billion over 2020.

After years of bullish expansion, the duty-free and travel retail market has been brought to a standstill by the COVID-19 pandemic. In 2017, the market was valued at $74.9 billion and was estimated to reach $153.7 billion by 2025. According to the Duty Free World Council, $36.2 billion was spent on duty-free and travel retail that year in the Asia-Pacific region.

But the pandemic sank retailers, forced airport stores to close down, postponed cruise activity, and hindered sales growth. In just one year, COVID-19 wreaked unprecedented havoc in the industry, effectively killing duty-free and travel retail.

The silver lining for the industry has been China: a resilient market that benefited enormously from the relaxation of duty-free limits, the repatriation of wealth, and the country’s luxury appetite. Not long ago, the prodigal Chinese shopper satisfied his luxury cravings while traveling internationally. But with tight safety measures and cross-border restrictions in place, he turned his attention to China’s duty-free shopping paradise: Hainan island.

Offshore duty-free sales on Hainan island rose to $3.82 billion (25 billion RMB) for the year up to December 14 of 2020, according to official figures released by Invest Hainan to The Moodie Davitt Report. Since the adoption of the new offshore duty-free shopping policy on July 1 of that year, average daily sales have surpassed $18.3 million (120 million RMB), Hainan IEDB reported.

Through bold moves, some retailers and e-commerce players managed to thrive in this new reality. Those retailers built better brand engagement and attracted new shoppers by identifying consumer needs and capitalizing on demand shifts. The Chinese e-commerce platform is one example of a company making all the right moves on Hainan.

Right before the New Year’s holiday, JD Worldwide opened a duty-free store in partnership with Hainan Tourism and Investment Development Co. in Sanya, Hainan province. According to JD’s corporate blog and data from Haikou’s Customs, sales from three of its newly opened duty-free shopping centers (including Sanya Hailv) reached 540 million yuan from January 1-3, a year-on-year increase of 195 percent.

“JD has leveraged its expertise in e-commerce, marketing, and supply chain to create a store that is unlike traditional duty-free stores,” says the press release. “Whereas most duty-free shops focus on fashion, luxury, cosmetics, and even alcohol and cigarettes, JD has gone in an entirely different direction, equipping the store with consumer electronics and small appliances, such as hair dryers, speakers, and coffee machines.”

JD’s duty-free store in Sanya focuses on electronics and digital products from brands like Dyson and De’Longhi. Photo: JD’s Corporate Blog

As you can see, JD increased business profitability and sales revenues through a well-defined product diversification strategy that brought the right product to the right customer at the right time.

Take, for example, the company’s expansion into health supplements. JD understood that Hainan is the equivalent of Florida — a vacation hotspot for seniors and aging boomers. Therefore, instead of releasing new luxury products, JD came up with a personalized offer made up of health supplements and health-related products.

Providing consumers with a larger spectrum of products is a strategic move. But this is only one part of JD’s plan. The Chinese e-commerce company also digitized the retail experience by integrating JD’s cloud & AI technology while launching a cross-border experience store.

JD’s cutting-edge retail technology and its digitalization capabilities took the retail experience to a new level. By introducing “smart shelves” — electronic price tags that ensure real-time price changes and smart marketing technologies — the company built a more interactive and personalized experience.

Luxury brands and Western retailers that want to take advantage of the booming duty-free industry in China should follow in JD’s footsteps by building positive brand experiences, increasing product diversity, satisfying consumer desires for safety, and prioritizing convenience.

One company, the luxury beauty brand Helena Rubinstein, has already taken a page from JD’s playbook by collaborating with the China Duty Free Group to launch its very first online-to-offline premium luxury travel event in Sanya.

On December 21 and 23, luxury experiences at the Helena Rubinstein villa were livestreamed by two renowned beauty influencers, Teacher Xu and Kakakaoo. The livestreaming session attracted more than 25 million viewers, according to Duty Free & Travel Retailing Magazine.


Companies, Market Analysis