New revenue streams crucial for APAC’s duty-free market: report

It will benefit the market to convert domestic demand into offshore duty-free sales.

With international tourist arrivals to Asia Pacific not expected to reach their pre-COVID-19 levels until at least 2023, finding new revenue streams especially from Chinese customers is crucial for the region’s duty-free market, according to a report from GlobalData.

In a bid to revive the market from the negative impact of the pandemic, Asian countries are exploring several revenue streams.

China’s travel retail was able to recover quickly due to favorable duty-free shopping policies introduced in Hainan. After the government removed all purchase caps and tripled the annual limit on duty-free purchases in Hainan Province to $15,500 (CNY100,000) per person, China Duty-Free Group recorded a 127% revenue surge during Q1.

Similarly, Dufry in collaboration with Hainan Development Holdings, a fully state-owned company of the Hainan Provincial Government, opened a 38,920 sqm downtown duty-free shop at the Mova Mall in Haikou to tap the potential in Hainan’s travel retail market.

The move to take advantage of the ongoing restrictions and convert the domestic demand into offshore duty-free sales will be beneficial to the country’s duty-free industry, said GlobalData’s retail analyst Vijay Bhupathiraju.

“As demand for high-end luxury products continues, China’s decision to designate Hainan Island as a free trade port is a blessing for duty-free retailers, who would have been struggling otherwise with significantly fewer international tourist arrivals,” Bhupathiraju said.

Further, the report noted that amidst the ongoing restrictions and closed borders, cross border logistics and smooth functioning of supply chain becomes the major challenge to fulfil demand.

“With Cainiao’s enhanced logistics services and technology, long transit times will be eliminated, and imported goods will reach Hainan within a few hours, making new stocks available for shoppers at an elevated frequency,” Bhupathiraju added.

Meanwhile, in November 2020, South Korea announced plans to allow non-destination flights to taxi passengers for 12 months and the same duty-free shopping allowance was allowed for passengers to buy as in normal international flights.

“These aforementioned initiatives from local governments will help duty-free players to remain afloat during these testing times and bring back lost sales to some extent,” Bhupathiraju said.