[para. 1][para. 2] On October 1, 2024, “Sanyanghao,” Beijing’s second downtown duty-free shop opened near Qianmen Street. In parallel, another shop in Chaoyang District is undergoing transformation to meet new policies. The “Sanyanghao” has shifted focus to cater not just to returning Chinese with passports but also foreign and domestic travelers about to depart. Spanning 1,800 square meters, the shop includes over 200 international brands with items discounted by 20%-50% compared to taxed markets.
[para. 3][para. 4][para. 5] In Shanghai and Hangzhou, duty-free stores are clearing out inventories, while new regulations seek to boost China’s duty-free market to pull more overseas consumption to China. As of October 2024, new measures redefine city-based duty-free shops, exempting them from tariffs, VAT, and consumption tax. In addition to modernizing existing stores, the policy aims for the establishment of shops in eight major cities, increasing the total to 27.
[para. 6][para. 7] China’s duty-free market has both internal and external challenges. After a period of robust growth, the market dipped in 2022 by 30% to 36.531 billion yuan. Moreover, Hainan’s duty-free sales experienced a marked decline amid an increase in outbound tourism. Comparatively, Japan saw a 261.2% increase in Chinese tourists, drawn largely by the depreciating yen.
[para. 8][para. 9] Historical calls to improve duty-free policies resulted in several recommendations and plans, yet domestic stores have faced constraints such as serving primarily foreign tourists. These restrictions led to less than 1% contribution to total sales from city stores. However, new policies aim to attract foreign tourists and encourage domestic purchases from departing Chinese travelers.
[para. 10][para. 11] The policy shift, which removes the annual spending limit for duty-free, could influence foreign tourists’ spending. Nevertheless, challenges such as payment and language support remain. The government sees the timing of these reforms as pivotal in stimulating the economy amid waning consumer power.
[para. 15][para. 18] Duty-free shopping in China was once geared overseas. In 2019, Chinese travelers accounted for 40% of global duty-free sales. However, a predominant section was represented by airport stores, with downtown stores contributing minimally. By 2020, policies expanded offshore shopping quotas, skyrocketing Hainan sales. The region became a duty-free hotspot, outpacing major Chinese cities’ luxury malls in revenue.
[para. 20][para. 23] Yet, with ongoing challenges in Hainan’s market, focusing on downtown stores might offer an avenue for sustained growth. Experts suggest potential growth to over 20 billion yuan, leveraging inbound tourism. Cities receiving the new duty-free stores align with popular tourist destinations, and recent improvements in China’s travel policies bolster this potential.
[para. 25][para. 29] Still, the model requires consumers to pick up purchases before departure, potentially discouraging it. However, offering no spend limit adds an enticing angle. Local governments have a say in determining operators of these stores, with existing licensed entities likely forming joint ventures for securing business rights.
[para. 37][para. 39] Lastly, competing globally requires brands’ active participation. Yet, downtown store locations next to full-price outlets might deter brand owners. Concerns also arise around the pricing control in buyout agreements, as seen with Estée Lauder’s Hainan experience, pointing towards cautious engagement from suppliers. Despite broader market challenges, duty-free remains a significant driver of consumer spending, with strategic adjustments underway to harness this potential.
AI generated, for reference only