Over the past year, Hu guoran, head of Faberge Greater China, a jewelry brand headquartered in London, UK, waited for a “hero” investor in China to officially open the first store in the Chinese market.
On February 17, Hu guoran told the economic observer that they finally chose to land in Macao.
Faberge is regarded as a classic niche luxury jewelry brand in the industry. The most famous story is that he once customized 50 colored eggs for the Russian royal family. In May last year, Hu guoran led Faberge to make an appearance at the first China International Consumer Goods Expo (hereinafter referred to as “consumer goods Expo”) held in Hainan. It attracted much attention with a handmade colored egg with a price of 11.18 million yuan, a weight of 10 kg and 18K gold.
Hu guoran said that the unit price of Faberge’s goods ranged from 20000 yuan to tens of millions. At that time, due to the tax exemption policy during the exhibition, there were a few twists and turns in the sales process. However, the trip to Hainan made Hu guoran full of confidence in China’s consumer market. “Beijing, Shanghai and Chengdu are all things we think about more.” Hu guoran said that since its debut in Hainan, China’s top shopping malls and department stores have also expressed their desire for the entry of Faberge brand. He has had preliminary contact with Wangfujing Group Co.Ltd(600859) and has been talking with high-end department stores SKP and Chengdu ifs, but there is no suitable investor. He also said that he was interested in the entry of duty-free stores promoted by the construction of major cities in China, but there was no opportunity to establish communication.
Hu guoran said that the capital level of investment fee birch is not high, even lower than joining some jewelry brands in Hong Kong or China. In addition to store rent and employee salary, it takes about 3-5 million yuan to purchase goods. He believes that such magnitude is acceptable for cities such as Shanghai and Beijing. Although the influence of Chinese people in the international luxury consumption market is certain, at present, China’s luxury market is not very mature, and operators pay more attention to immediate profits. “MGM hotel in Macao knows heroes with insight. The store is invested by the hotel. I hope such heroes will appear in China soon.” The focus of their brand promotion in Macao is strong in the first half of this year, but Hu said that they also believe in the opening of the luxury store in China.
Hu guoran’s view is not unreasonable.
In February this year, according to the data of Hainan Provincial Department of Commerce, the tax-free sales of Hainan outlying islands during the Spring Festival holiday in 2022 was 1.944 billion yuan, a year-on-year increase of 156%; The number of duty-free shoppers was 301800, a year-on-year increase of 138%. From January 1 to February 13 this year, the total sales volume of ten outlying island duty-free stores in Hainan reached 9.954 billion yuan, a year-on-year increase of 70%.
Chen Bo, executive director of the free trade zone research center of Huazhong University of science and technology, told the economic observer that it is not surprising to face such data. On the one hand, the hot tax-free market in Hainan is consistent with the trend of the luxury market in the international market. On the other hand, affected by the entry-exit restrictions caused by the epidemic, Hainan has become a “vent point” for high-end consumption.
Since 2020, the tax-free policy of Hainan outlying islands has been adjusted again in the overall plan for the construction of Hainan free trade port, and the tax-free sales of Hainan outlying islands have been growing at a high speed. At the same time, many cities in China, such as Guangzhou, Shenzhen and Chengdu, have successively announced to promote the construction projects of “in city” duty-free stores.
tax free hot in Hainan: daily average sales of 300 million yuan
The work report of Hainan provincial government puts forward a goal in the main work of 2022: strive to sell 100 billion yuan of duty-free shops on outlying islands.
How far is Hainan from this goal?
On April 20, 2021, a group of data released by the Department of Commerce of Hainan Province showed that the tax-free policy of Hainan outlying islands had reached 94.8 billion yuan in ten years since it was implemented on April 20, 2011. In February this year, another set of data from the Department of Commerce of Hainan Province showed that in 2021, the sales of 10 duty-free shops on Hainan’s outlying islands were 60.173 billion yuan, a year-on-year increase of 84%.
The change began after July 2020. According to the announcement on the tax-free shopping policy for passengers on outlying islands in Hainan issued by the Ministry of finance, the General Administration of customs and the State Administration of Taxation on June 29, 2020, the main adjustments of the new policy implemented after July 1, 2020 include the increase of the tax-free shopping quota from 30000 yuan to 100000 yuan per person per year, the increase of the variety of duty-free commodities on outlying islands from 38 to 45, and the cancellation of the tax-free quota of 8000 yuan for a single commodity, It is also clear that business entities with tax-free product distribution qualification can equally participate in the tax-free operation of Hainan outlying islands.
Since then, duty-free shopping in Hainan has opened a high-speed growth mode. On September 29 of the same year, Shen Danyang, vice governor of Hainan Provincial People’s government, announced at the Forum on sharing new opportunities for free trade ports at the 2020 meeting of China Green company that the tax-free sales of outlying islands in 88 days from July 1 to September 26 reached 8.3 billion yuan. Shen Danyang also put forward two data at the press conference: the average tax-free sales in Hainan is 100 million a day, and the tax-free sales on outlying islands may reach 100 billion soon.
In July 2020, when the new tax-free policy for Hainan outlying islands was implemented, the Hainan Provincial Department of Commerce announced that there was one China Tourism Group Duty Free Corporation Limited(601888) (601888. SH) and four outlying island duty-free stores. Over the past year, Hainan tax-free fever has attracted China Tourism Group Duty Free Corporation Limited(601888) , Shenzhen tax-free group, Zhuhai tax-free group and other tax-free business entities to join and expand tax-free business in Hainan. By the end of 2021, there were 5 tax-free business entities in Hainan outlying islands, and the number of outlying island duty-free stores had increased to 10.
In terms of duty-free sales, from February 11 to 17 during the Spring Festival in 2021, the sales of nine duty-free shops on outlying islands in Hainan exceeded 1.5 billion yuan in seven days, with an average daily sales of about 200 million yuan. From January 31 to February 6 during the Spring Festival in 2022, the total sales of 10 outlying island duty-free stores in Hainan are 2.131 billion yuan, about 300 million yuan per day. Meanwhile, as of February 13, 2022, the sales of duty-free shops in Hainan outlying islands still maintained an average daily sales of more than 300 million yuan.
From the performance report of China Tourism Group Duty Free Corporation Limited(601888) representative enterprises in the tax-free industry, China Tourism Group Duty Free Corporation Limited(601888) 2020 annual report said that despite the impact of the epidemic, driven by the new tax-free policy for outlying islands in Hainan, according to the latest statistics of international tax free news (dfni) and Moody’s report, the ranking of the company jumped from the fourth place in the world in 2019 to the first place in the world in 2020. China Tourism Group Duty Free Corporation Limited(601888) the semi annual report of 2021 shows that during the reporting period, the company achieved an operating revenue of 35.526 billion yuan, a year-on-year increase of 83.98%; The total profit was 8.521 billion yuan, a year-on-year increase of 633.81%.
Xie Laifeng, deputy director of the Institute of Hong Kong, Macao and regional development of China Academy of comprehensive development, also pointed out to the reporter of the economic observer that although duty-free sales in Hainan are in an explosive state, the retail growth of consumer goods in the whole society is not ideal, indicating that the duty-free market still accounts for a small proportion in the consumer market.
tax free heat is “in the city”: many places are promoting construction
Tax exemption fever is not only in Hainan, but also in other cities in China.
Among them, in 2021, Shenzhen duty-free group completed the completion and opening speed in 25 days, and built a “global shopping” offline experience store located in Shenzhen Qianhai Shenzhen Hong Kong Trade Logistics Town, operating in the mode of “online platform + offline experience + on-site delivery”.
However, the project was quickly given a “bad comment” in operation. A consumer left a comment on the public comment platform and said, “the results of shopping are shocking. It’s small enough. Many temporary goods are inconspicuous at the door, and the vegetable market is not only visual.”
On February 17, a staff member of the above experience store told the economic observer that the products sold in the mall occupy the annual personal quota of consumers’ cross-border e-commerce retail imports. According to the regulations, the order limit for each order in the mall is 5000 yuan. Most of the products are aromatics and alcohol, followed by cosmetics and no digital products. (mall) the price is the price including tax, which shall be paid in full by Shenzhen duty free group in accordance with national laws and regulations. The platform goods belong to cross-border e-commerce retail imported goods. ” The staff said.
According to the definition of the national development and Reform Commission, the city duty-free shop refers to the shop set up in the urban area and selling duty-free (duty-free and import link tax-free) goods under the supervision of the government. Its essence is to set up an exit duty-free shop in the urban area, which is convenient for outgoing passengers to select and purchase goods to carry out the exit through the mode of purchasing in advance in the city and picking up goods at the airport. According to the existing policy, the sales target of the duty-free shops in China is the outbound passengers and compatriots from Hong Kong, Macao and Taiwan. The main categories are jewelry, perfume, leather bags and high-end brand watches.
Before the implementation of the new tax-free policy for outlying islands in Hainan, in March 2020, the implementation opinions on promoting consumption expansion and quality improvement and accelerating the formation of a strong Chinese market (hereinafter referred to as the “opinions”) issued by the national development and Reform Commission proposed to improve the policy of duty-free shops in the city and build a number of duty-free shops in the city with Chinese characteristics. Cities with conditions are encouraged to provide land and financing support for the construction and operation of duty-free shops in the city, and set up departure pick-up points for duty-free shops in the city at the airport port. Expand duty-free business at ports and add duty-free shops at ports. The Opinions also proposed that we should pay equal attention to serving overseas people and our outbound residents, strengthen the overall planning for the development of tax-free industry, and improve the policy system of tax-free industry. Set up a certain area of domestic goods sales area in duty-free shops, guide relevant enterprises to develop high-quality and characteristic domestic goods dedicated to duty-free channels, and build duty-free shops into an important platform to support high-quality domestic goods, display independent brands and spread national traditional culture.
In February 2021, the official wechat of the Commerce Bureau of Jinjiang District of Chengdu said that Jinjiang District actively connected with China Tourism Group Duty Free Corporation Limited(601888) , introduced a new consumption mode of duty-free shops in the city, enriched consumption formats, promoted consumption return, released consumption potential, and made every effort to present the project of duty-free shops in the City in 2021.
In January 2022, the official wechat of China Tourism Group announced that it would cooperate with Guangzhou municipal government to build the first duty-free complex in Guangdong, Hong Kong and Macao Dawan district – Guangzhou North Railway Station duty-free complex project. The source said that the project includes duty-free mall, outlets mall, one office tower, two commercial towers and some public supporting facilities. At the same time, the project is about 10km away from Baiyun International Airport. It will explore the first comprehensive development mode of TOD (public transport oriented project development) + duty-free IP, and face the three major customer groups of Huadu new middle class, urban new generation and hub visitors.
Peng Peng, executive chairman of Guangdong Institute of system reform, told the economic observer that duty-free shops are generally at ports, such as airports and ports. Entering the urban area is generally a free trade zone or free trade port.
“Now the expansion of duty-free shops should not have a good prospect.” Peng Peng believes that on the one hand, it will affect the effect of duty-free shops at ports and free trade zones, on the other hand, it will bring vicious competition. He believes that Guangzhou, Shenzhen and Chengdu are all first tier cities or quasi first tier cities. If duty-free shops are established outside the free trade zone, free trade port and port, they should be established in backward areas or port cities, so as to have the rationality and legitimacy of establishing duty-free shops. “If it is Huadu, it depends on the relationship with the airport. Linkage with the airport can be seen as an extension of the airport. If it is Qianhai, it depends on whether it is a substitute for Hong Kong duty-free stores.” Peng Peng believes that duty-free shops in the city should not compete for profits with the local economy. If they are imported, they can replace them.
Chen Bo, executive director of the free trade zone research center of Huazhong University of science and technology, told the economic observer that the situation of duty-free shops in the city is different from that in Hainan. “As long as you are in Hainan, you can buy directly in duty-free shops, and now the amount is also raised very high, but duty-free shops in the city still need consumers to provide international air tickets or corresponding exit certificates, and then go to the airport to pick them up, which has long been available and familiar internationally.” Chen Bo said that at present, the duty-free shops in cities around the city that promote the construction are more to provide the convenience of duty-free sales. “It is certainly good for tax-free enterprises and meaningful for the sales of tax-free goods in China, but the short-term impact of promoting consumption return, or the perspective of high-end consumption, may be small.” Chen Bo believes that for cities that promote the construction of duty-free shops in the city, increasing some consumption places, more business taxes, more employment opportunities and more investment are beneficial and harmless to the city. At the same time, from the long-term perspective of internationalization, a city has more international exchanges, which will naturally promote the consumption of duty-free goods by international tourists, such as many shopping malls in Paris that we are familiar with. “But I personally feel that unless there is a large-scale development, it will not have a great impact if one or two small shopping malls or an airport duty-free shop opens a branch in the city.” Chen Bo said.
