eTALK China Insights: Hainan Travel Retail Market

Hainan Travel Retail Market

When you think of China, you don’t necessarily think of white sand and warm seas.

Hainan, located in the south of China looks like a tropical dream and is now facing a peak of domestic tourist.

It now has become the world’s fastest growing market in travel retail – learn about how brands can capitalize on this travel retail boom!

How big is Hainan Travel Retail?

Hainan Travel Retail
Source: South China Morning Post

81 million tourists in 2021 with 25.5% YoY growth.

2025 expected sales: ~200 bn RMB (~28.6 bn EUR), which takes ~74% in national travel retail duty-free sales.

Hainan market expected to absorb 10% of global Chinese duty-free consumption by 2022 and increase to 50% by 2030.

Growth Momentum

Hainan growth momentum
Source: Roland Berger

The growth momentum:

-booming domestic tourism due to covid

-relaxation of government policies to boost domestic consumption and repatriate overseas shopping

Offshore Duty-Free Policy

Offshore Duty-Free Policy

For those departing the island by plane, ship or train can enjoy a zero import duty shopping.

These are available in special offshore duty-free stores or on online sales platforms.

In recent years, the policies have been relaxed significantly, with the quota reaching RMB 100,000 per person and more and more categories being added.

DFO commonly in use

DFO China Gucci

Currently, brands in Hainan can either work with duty free operators run by state-owned license holder, or operate their own duty-paid stores.

The duty-free model is the mainstream practice.

Under the duty-free model, brand owners supply goods to duty-free operators responsible for local retail activities.

DFO Pros & Cons

DFO Pro Cons Sanya
Sanya International Duty Free Shopping Complex | Source:

DFO has been effective in driving volume and sales, but also shows potential risks in the delivery of consumer experiences:

  • lack of control over consumer engagement and retail operations,
  • generating disparity in pricing
  • possible negative consequences on brand equity
  • sales cannibalization in the domestic market.

Keys to win

Keys to win hainan travel market
Source: CGTN

Key 1: A managed DFO wholesale model

Given the risks of the current DFO model,

a new way forward is the managed DFO wholesale model, where the brand and the DFO work together to deliver a more brand and customer-oriented experience.

Key 2: Adopting the right governance model

Brands could optimize the governance structure, facilitating communication and collaboration between the HQ team, Travel Retail team and the China domestic team.

Key 3: Building the foundation for setting up directly owned stores

The complete transformation of Hainan in 2025 will result in brands being able to set up their own duty-free stores.

Prior to this, extensive preparation must take place, including a go-to-market strategy and start mobilizing teams and developing capabilities from today.

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