Hainan’s tourism retail industry has been in a prolonged slump for the past 14 months, with no signs of improvement in sight. According to the latest data from Haikou Customs, the amount of duty-free shopping, the number of shoppers, and the quantity of goods purchased in the first four months of this year have all seen significant declines. Beauty industry giants such as Estée Lauder, L’Oréal, and Shiseido have been hit hard.
In the period from January to April this year, the duty-free shopping amount on Hainan Island decreased by 10.8% year-on-year, the actual number of duty-free shoppers dropped by 27%, and the quantity of duty-free items purchased saw a decline of over 25.1%.
According to Bloomberg, global beauty industry giants are also feeling the impact of the decline in China’s tourism retail industry. Companies like Estée Lauder, Shiseido, and L’Oréal have been relying on duty-free spending by Chinese tourists to drive their revenue growth. However, last year and in the first quarter of this year, these three companies experienced contraction in their Asia or China travel retail sales.
A report by Caixin on April 15 quoted insiders as leaking that due to the poor performance of the duty-free industry in China in recent years, L’Oréal plans to lay off up to 50% of its staff in the travel retail department. This department is mainly composed of Chinese employees.
The company’s travel retail division stated in a press release that L’Oréal is undergoing a transformation aimed at better adapting to market changes and evolving consumer demands. The statement also mentioned that the report by Caixin is not accurate.
The weakened Chinese economy has led to a decrease in consumer spending among the Chinese population, impacting the luxury goods industry over the past couple of years. In addition, Bloomberg quoted Jacques Roizen, Managing Director of Digital Luxury Group in China, as saying that global beauty brands offering significant discounts both online and offline have narrowed the price gap between mainland and duty-free store prices, reducing the attractiveness of travel retail for beauty products.
Serena Sang, a consumer analyst at Pu Yin International Holdings Limited, said, “There hasn’t been a strong recovery in tourism retail in Hainan. Per capita spending during the May Day holiday continued to decline. As Hainan Island progresses towards independent customs operations, we still need time to assess consumer reactions.”
Hainan resident Chen Yushan is a typical example of this shift in consumer habits. Four years ago, Ms. Chen used to travel over six hours round trip from home to the Hainan duty-free shopping center to purchase luxury cosmetics. Now, with the economic slowdown and uncertain outlook, she only makes one or two such trips per year.
“With the economy like this, I’m cutting back on spending on expensive skincare products,” Ms. Chen told Bloomberg. “I’m not even buying luxury handbags anymore, those things are not very useful. Now I’d rather spend money on a good hotpot meal to treat myself.”
Although the Chinese authorities had hoped that fully duty-free Hainan would attract Chinese consumers away from countries like South Korea and Japan, boosting the consumer engine in southern China, the resumption of tourism to places like Japan and South Korea post-pandemic has weakened duty-free spending in Hainan.
According to data released by Haikou Customs on January 2, duty-free shopping in 2024 decreased by 29.3% compared to 2023, and the number of duty-free shoppers decreased by 15.9%.
The decline in duty-free consumption in Hainan in 2024 also foreshadows its continuation into 2025, and the plan to turn the entire island of Hainan into a duty-free shopping zone has run into difficulties.
In April 2018, following an announcement by the top leader of the Communist Party of China in Hainan, the State Council of China designated the entire island of Hainan as a special economic development area, namely the Hainan Free Trade Port. According to the plan for the Hainan Free Trade Port, it offers lower barriers to foreign investment in areas such as finance, education, and medical services. The island will also become a place where foreign visitors from nearly 60 countries can visit visa-free and purchase duty-free cosmetics, imported cars, and even yachts. In 2020, authorities raised the duty-free shopping quotas at 12 duty-free shopping malls in Hainan.