Situated along the southern coastline of mainland China, Hainan is the largest island in China. Often dubbed China’s Hawaii, it is perhaps best known for its pleasant climate year-round, unspoiled shores and verdant rainforests. It’s these qualities and the government’s increased investment in infrastructure that have brought affluent tourists into the island, which has since commanded the openings of premier hotels, golf courses, and five-star dining establishments – and in recent years, premier retail destinations that integrate the duty-free and duty paid sectors.
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In 2020, despite global challenges such as travel restrictions and a shift in luxury spending patterns, China domestic travel and consumption thrived. During this year, Hainan managed to achieve a 1.2 percent year-on-year increase in retail sales, surpassing the national average by 5.1 percentage points, according to a 2021 report by Savills.
What to know
China plans to transform Hainan into the globe’s largest free-trade port by 2025, employing reduced taxes and more relaxed visa regulations to entice investment and tourism.
While the vision is for the island to coexist with destinations such as Hong Kong and Macau, more and more Chinese shoppers are choosing to spend their money closer to home. Duty-free shopping limits per shopper have been raised to RMB100,000, from RMB 15,000 in 2015; up to 45 duty-free items are permitted, spanning gadgets, liquor, and other products in addition to 30 beauty products.
Beauty category a growth opportunity
In 2022, beauty products contributed 43 percent to total duty-free sales which amounted to RMB21.89 billion (USD3.05 billion).
“In the realm of beauty, the hero categories encompass skincare, makeup, and fragrance. Skincare holds the lion’s share, accounting for over half of the market at 21 percent. Makeup follows at 9 percent, while fragrance demonstrates rapid growth at 8 percent. Body and hair care have experienced recent upticks, reaching 5 percent,” says Samy Redjeb, managing director for Greater China, the Bluebell Group. “The average basket size in the beauty sector is largely influenced by top luxury brands, including Chanel, Estée Lauder Group, L’Oreal, Shiseido, Dior and Clarins.”
A report jointly published in 2023 by KPMG and the Moodie Davitt Report also highlighted significant growth in market share for cosmetics and perfumes in Hainan–a remarkable increase from 43.7 percent in 2019 to 56.9 percent.
Moreover, the rising fascination with perfumes in China indicates that Hainan will continue to capture a larger portion of the market in this category in the foreseeable future.
Redjeb identifies niche brands such as Diptyque, Maison Martin Margiela, Kilian, Byredo, Penhaligon’s, and Creed commanding strong sales.
New and upcoming developments
“It is noteworthy to highlight that Hainan is emerging as a destination for Chinese travellers from Tier 2 and 3 cities to explore new brands that may not be readily available in their hometowns. As many shopping centres in those cities tend to feature similar products and established brands, the presence of fresh market entrants remains limited,” Redjeb says.
The world’s largest travel retailers are developing mono-brand boutiques, shop-in-shop, and pop-up activations to tap the market. Among the brands exploring various approaches are L’Oréal with Maison Martin Margiela, LVMH with Loewe, Coty with Gucci fragrance, Estée Lauder with Frederic Malle, and Kering, with its new beauty division and acquisition of Creed fragrance.
China Duty Free Group (CDFG) has said it intends to transform Hainan into ‘a world-class free trade zone’ by introducing more brands to malls, and expanding its sales channels at home and abroad, by 2050. The group last year unveiled the largest duty-free store located in Hainan’s capital city, Haikou International Duty Free City, which covers a total area of 930,000 square metres consisting of tax-free business, high-end offices, a high-end hotel, as well as art and tourism spaces. About 280,000 square metres have been devoted to duty-free retail.
This year, China Tourism Group have unveiled the Sanya Yunjie Island (Duty Paid) project in Haitang Bay, where standalone boutiques from luxury brands such as Louis Vuitton Alexander Wang, Buccellati, Celine, Dior, Fred, and 13 other tax-paid stores have opened. Swire Properties are in charge of commercial leasing and management for the development, which is set to welcome around 90 more luxury and F&B brands including Damiani, Giorgio Armani, Hublot, Loro Piana, Ralph Lauren, and Tod’s.
Separately, Swire Properties have also announced plans for its own resort-style, premium retail duty-paid project in Haitang Bay National Coastal Recreation Park, expected to be completed in phases from 2025.
Meanwhile LVMH-owned DFS is set to launch its inaugural world-class luxury retail and entertainment destination, known as DFS Yalong Bay, in the city of Sanya in Hainan. Spanning an expansive area of 128,000 square metres, DFS Yalong Bay will showcase a collection of over 1,000 luxury brands, among them maisons from the LVMH Group. The establishment is expected to open its doors by the year 2026 and aims to redefine opulence with its seven-star status.
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The new addition is testament to forecasts that Hainan is on the way to becoming “one of the world’s largest luxury retail markets in the next five years,” noted Benjamin Vuchot, DFS chairman and CEO. DFS Yalong Bay will be a “critical addition” to the group’s global portfolio, Vuchot added.
Travel retailers Zhuhai Duty Free Group and Avolta have formed a partnership to develop a duty paid retail-plus complex at the Sanya Bay One project, envisioned as a premium location for global brands, to boost Hainan’s tourism, and stimulate new business opportunities.