China’s Hainan Island Under Lockdown, Dents Duty-free Sector
China’s duty-free hotspot Sanya — as well as Haikou, the provincial capital of Hainan Island, Wanning, Danzhou, Lingshui, and Qionghai — have been put under lockdown over the weekend to stem an outbreak of the COVID-19.
It’s reported that around 80,000 tourists are stranded on the tropical island, as the province in the most southern tip of China logged a total of 982 local confirmed cases in the past week — 801 of them recorded in Sanya.
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Public transportation was suspended and people’s movements inside the cities were restricted, while health officials carried out a province-wide mass testing from Sunday.
As a result, entertainment venues, as well as duty-free stores in Sanya, including the China Duty Free Group in Haitang Bay and CNSC and HTDF in downtown Sanya, were forced to close from Aug. 4.
From Monday, duty-free stores in Haikou, which include China Duty Free Group and GDF Plaza at Mova Mall and Shenzhen Duty Free/DFS Group at Mission Hills, have also suspended trading until further notice.
The island’s duty-free business, which began to recover from the previous lockdowns from March to May, is bound to take another hit. Shares of duty-free and airport operators on the island fell sharply on Monday.
In the first half of 2022, the total number of visitors to the island decreased by 37 percent due to sporadic COVID-19 outbreaks across China. Hainan’s airports saw departing passenger numbers drop by 56 percent, 79 percent, and 66 percent year-on-year in March, April, and May, respectively.
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China Tourism Group Duty Free Corporation, the parent company of China Duty Free Group, last week posted a 22.2 percent decrease in first-half revenues to 27.65 billion renminbi, or $4.1 billion, year-on-year.
The Shanghai-listed company, which is said to be launching a Hong Kong listing on Friday, said “the business was under great impact from March to May,” but “the market started to recover in late May, in-store sales bounced back quickly.”
In the past two years, China’s pent-up demand for travel retail has sent offshore duty-free shopping at Hainan Island off the charts, especially after the per person duty-free shopping allowance was tripled from 30,000 renminbi to 100,000 renminbi from June 2020. Because international travel is heavily restricted in China due to a zero COVID-19 policy, Hainan is the only place Chinese citizens can travel to during the pandemic.
According to data from the Department of Commerce of Hainan Province, duty-free revenue within the tropical island increased by 84 percent in 2021 to 60.17 billion renminbi, or $9.47 billion.
Xinhua News Agency via Getty Ima
In the long run, luxury and beauty players, including LVMH Moët Hennessy Louis Vuitton, Kering, Richemont, Tapestry, and Burberry, remain bullish on China’s duty-free future on the island.
Andrew Wu, LVMH group president of Greater China, signed a partnership agreement with The Haikou Integrated Free Trade Zone at the China International Consumer Products Expo last month in Haikou.
As part of the agreement, LVMH will set up a bonded warehouse in the zone dedicated to the group’s perfume and cosmetics travel retail business.
“In the future, consumers all over the world will come here to shop. We think Hainan is very important, and we are highly optimistic about the market,” Wu said.
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