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Duty Free Targets Chinese Consumers

Industry experts and analysts gathered to discuss insights and strategies related to the duty-free world’s most important growing group of customers.

BEIJING — When Vancouver hosted the Winter Olympics three years ago, the thousands of travelers who flooded the city from around the world for the games also boosted duty-free sales at the local airport to a record-breaking level in one day.

“Remember this day, because you won’t see it again,” Freda Cheung, the chief executive officer for Canada of World Duty Free Group, recalled telling a colleague in the airport at the time.

Yet just three years later, Cheung and her team proved those words wrong when a group of 600 Chinese travelers passed through the airport in January and smashed that Olympics sales record, which had involved sales to thousands of consumers. It was no accident, Cheung said here Wednesday. Rather, her company made deliberate, calculated steps to court Chinese consumers, planning well in advance with Chinese-language signs, Chinese-speaking staff and products and promotions to suit their tastes.

 

“Understanding why Chinese travelers are at our airports is key to selling to them,” Cheung told the Tax Free World Association’s “China’s Century” conference, which is meeting in the Chinese capital this week.

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Cheung joined a catalogue of industry experts and analysts on Tuesday to discuss insights and strategies related to the duty-free world’s most important growing group of customers: Chinese travelers and shoppers who buy duty-free products ranging from cosmetics and fashion accessories to cigarettes and liquor.

They discussed airport strategies inside and outside of China, economics and potential challenges, but the general agreement appeared to be that China’s fast-growing travel market combined with the heavy and growing demand for high-end goods at a decent price presents massive opportunities for the industry. Most agreed that any new anticorruption effort in China will not negatively impact growth in sales.

“The fact that we are gathered here to talk about one passenger is proof alone of the power of the Chinese traveler,” said Emmanuel de Place, ceo of LS travel retail ASPAC.

China’s tax-free shopping boom is unique and intimately tied in with both the country’s dramatic surge in wealth in recent years and government fiscal policies. Duty-free sales began here some 30 years ago, but in the past decade, they have increased exponentially, both within China and internationally. Steep taxes on the domestic retail sales of luxury goods mean duty-free products are significantly less expensive, so much so that international shopping trips to destinations like Paris and Tokyo have become common.

Hong Kong has built a massive tax-free shopping industry that caters to Chinese tourists, including weekend tourists who flock to designated duty-free malls designed with them in mind. Within China, the government has recently designated Shanghai as the country’s second duty-free shopping zone, joining tropical Hainan Island as a location where certain retailers will be able to sell middle and high-end consumer goods without charging the hefty taxes.

A regulation on the new Shanghai duty-free zone in January said the government will “explore tax rebates on departure in coordination with national-level administrations and select locations to set up duty-free shops,” according to a local press report.

Duty-free retail is such an important component of China’s high-end shopping scene that it’s even driving real-estate development in Hainan.

On the island, work has begun on a 7.7-square-mile residential, golf, spa and shopping development that will cater to tax-free shoppers, said Philippe Schaus, ceo of the duty-free giant DFS, which is a partner in the project.

“We believe this property creates all the elements to become an attraction and destination on itself,” said Schaus.

 

By the numbers, Chinese consumers made 50 million overseas trips last year and that statistic is rising fast. According to TFWA and the experts, Chinese duty-free shoppers, projected to have spent $80 million on those overseas trips, differ from other groups in several ways. They want personal interaction with staff, are eager for sales and discounts and buy more at holiday time, just before the Chinese New Year in late winter.

 

Retailers need to take these factors into account and plan and train staff accordingly, speakers suggested. Personal shoppers can be helpful, as is having staff who can speak Mandarin.

Beyond the international duty-free scene, industry executives spoke of tremendous growth opportunities within China’s borders as regional airports open up to international connections. At present, China is not a huge transfer hub and many international flights go through large airports. That is likely to change in the near future, opening up tremendous potential markets outside of Beijing and other large cities.

Sunil Tuli, managing director for duty free of the King Power Group in Hong Kong, said that while rising labor costs and other issues present challenges moving forward, the strength of the Chinese market will continue to grow and outweigh potential pitfalls.

“We face the newest and most exciting travel retail audience in the world,” said Tuli.