BEIJING (Reuters) – Duty-free spending fell 29.3 percent last year in Hainan Province on the island of China, where global luxury goods companies from LVMH to… dry (EPA:) has set up shop, as a weak economy has led to a sharp decline in domestic visitor numbers.
Shoppers visiting Hainan, known for its quaint seaside hotels and sandy beaches, spent 30.94 billion yuan ($4.24 billion) on duty-free goods in 2024, down from 43.76 billion in 2023, customs data showed on Thursday.
The data showed that their numbers decreased by 15.9% to 5.683 million, from 6.756 million in 2023.
“The decline in the value of foreign currencies, such as the Japanese yen, coupled with attractive travel policies such as visa-free entry to Malaysia, has prompted many Chinese consumers to look for lower prices abroad,” said Kenneth Chow, director of consulting firm Oliver Wyman.
While retail spending in Hainan is not crucial to the Chinese economy, the declines deal a blow to foreign luxury brands.
These brands have built on a post-pandemic boom that saw their sales triple to 43.76 billion yuan in 2023 compared to 2019, boosted by increased purchase limits in 2020 at Hainan's 12 duty-free malls.
Major international cosmetic companies such as L'Oreal and Estee Lauder (NYSE:) is also on display in Hainan, where beauty products accounted for more than 40% of duty-free sales in 2023.
“The decline in consumer confidence has greatly affected Chinese consumers' willingness to spend on luxury and discretionary goods,” Zhao added.
“This is especially true for prestige beauty products, which have seen significant declines.”
Hainan's decline in 2024 also does not bode well for plans to turn the entire island, which is roughly the size of Belgium, into a duty-free shopping zone in 2025.
This expansion would enable brands to operate their own duty-free stores, rather than relying on partnerships with local players, such as China Duty Free Group.
There are also hopes that making Hainan fully tax-free would lure Chinese consumers away from competing foreign duty-free centers such as Japan, Singapore and South Korea, helping to stimulate consumption in southern China.
Domestic consumption has returned to a lower trajectory, especially in the second half of 2024, as the wave of “revenge spending” following the forced saving of the Covid-19 pandemic fades.
Overall retail sales grew just 3.0% in November year-over-year, well below analysts' expectations of 4.6%.
Last year, senior officials of the ruling Communist Party called for “strongly” boosting consumption in 2025 and expanding domestic demand “in all directions.”
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