How long can duty-free sustain the Chinese luxury market?

Luxury e-commerce and duty-free shopping have been unexpected beneficiaries of the disruption caused by COVID-19, despite temporary store closures in Sanya. To this end, The Moodie Davitt Report also mentions the temporary closure of CDF Mall, HTDF and CNSC stores in Sanya.

During this time, the South China Morning Post points out that it is the economic strategy of “dual circulation” and the travel restrictions linked to the pandemic which are at the origin of the rise of luxury e-commerce and duty free: buyers stuck at home Chinese are going online to satisfy their luxury needs. In particular, the tropical island of Hainan and other mainland duty-free areas saw strong sales.

These consumer spending trends also show a spike in everyday consumption for the middle class, according to the 2021 New Middle Class White Paper published by Wu Xiaobo Channel. Research shows that 34% of the group spent more than $15,690 (RMB 10,000) per month, a 10% increase from 2020.

But despite these unprecedented increases, the South China Morning Post rightly recognizes that “overall consumption remains weak in China”. Major headwinds like the country’s slowing economic growthfactory gate inflation, continued COVID-19 lockdowns and property crackdowns will force consumers to adjust their spending.

Most luxury brands have refined their strategy there and are well prepared for the worst. But there are European labels that have yet to double the opportunity offered by duty-free.

In addition, the duty-free industry must deal with this great change in consumption and understand the habits and attitudes of its new customers. Under normal circumstances, business and international travelers would represent the main market. These have now been replaced by an audience that is youngerluxury and digital.

Daxue Consulting reports that 52.38% of tourists exiting duty-free shops are women. The majority of shoppers live in Tier 1 (48.6%) and Tier 2 (41.6%) cities and are “upper middle income citizens who are willing to spend money while traveling to research high quality experiences.

Inevitably, this demographic demands more than good prices and convenience. To stand out, businesses need to improve the shopping experience and create immersive commerce. It means creating value. For example, introduce new delivery and pickup methods, or engage the customer through live streaming and AI-powered retail experiences. And give them something new – beyond skincare, cosmetics and small leather goods. Naturally, this also involves adjustments to their education and marketing strategy.

Considering that the annual duty-free shopping quota has been raised to just under $16,000 (RMB 100,000) per person, luxury brands should feel encouraged to try big-ticket items like diamond jewelry and appliances. appliances.

DeBeers Forevermark understood the trend. Last November, it opened its first flagship store in the CDFG shopping complex at the Haikou Mova mall, while luxury jewelry outfits Tasaki and Messika followed suit with stores at the Sanya international duty-free shopping complex in Haitang. Bay in December 2021 (as mentioned by Tthe Moodie Davitt report). Owned by Richemont Van Cleef & Arpels also announced opening their own door there. And more are on the way – in light of the current sanctions against Putin, Russian high-jewelry brands and diamond and gemstone designers are set to unveil flagship boutiques in China’s duty-free malls.

VanCleef & Arpels opened its first permanent retail space in Haitang Bay in December 2021. Photo: Van Cleef & Arpels

The trajectory is clear, and global luxury should not take long to embark. From urban malls to new generations of consumers, there is a world beyond the airport. As expected, in the post-pandemic scenario, when Chinese customers return to outbound travel and travel retail and duty-free shopping cross borders and go beyond the domestic market, brands luxury brands will be forced to move more quickly to new models of customer engagement.

Naturally, this involves transforming duty-free stores into experiential galleries that engage customers through immersive and memorable experiences. Thus, luxury brands will use emerging technologies to personalize products directly in store, co-create unique objects in partnership with stakeholders and provide personalized recommendations based on consumer preferences. Obviously, these processes will help luxury brands increase sales of new product assortments.

In this retail reality, whenever a shopper views or purchases a lipstick, the store’s digital AR mirror will recommend the luxury outfit and leather accessory that complements the lipstick. In this context, duty-free shops and designer flagship stores will be forced to stock more than perfumes, cosmetics and entrance level goods. As a result, duty-free shops will become real experience centers where customers can come to enjoy exclusive events, test products, discover entertainment options and shop in complete safety.