There are many channels for Chinese brands to go to the world. Why do many brands ignore the role of tax-free channels?
On May 18, Li Yong, deputy director of the Investment Promotion Bureau of the Ministry of Commerce, revealed at the China Thailand duty-free industry online exchange meeting that in the past two years, the state has successively introduced policies to promote consumption, including the planning and construction of a number of duty-free shops in the city. It is worth mentioning that many policies mention the establishment of a certain area of domestic commodity sales area in duty-free stores. This undoubtedly opens a policy channel for domestic products to enter the tax-free channel.
“The promotion of Chinese brands on the duty-free platform will bring huge immeasurable opportunities”. Martin Moodie, founder and chairman of mudidavit report, believes that at present, various countries are promoting local brands and local products in duty-free stores. China has exquisite skill inheritance and should support and promote Chinese brands on the international tourism retail stage.
Wang Meng, CEO of “Jessica’s Secret”, pointed out that in recent years, the global duty-free industry brands have been active, but the Chinese brands are still limited. We may learn from the improvement path of the Korean duty-free industry chain.
“responsibility and opportunity”
Chinese people buy all over the world, but few Chinese brands can be found in duty-free stores around the world. Why do Chinese enterprises not attach importance to the channel of tax exemption? Is this market too small?
No. Jessica data show that in 2019 before the outbreak, the global tax-free industry sales reached US $81.8 billion. The contribution of tax-free channels to brands has also increased year by year. Take Shiseido as an example. In 2019, the sales of tourism retail sector was 102.2 billion yen, accounting for 9% of the group’s total sales, with a year-on-year increase of 16.60%. Not only Shiseido, but the sales of Estee Lauder, L’Oreal and other international brands in the tourism retail sector also increased before the epidemic. Estee Lauder’s sales in duty-free channels even accounted for 23%. Therefore, international brands even named the tourism retail sector “the sixth continent”. “The tourism retail industry has become an important driving force for the growth of brand sales, and brands are eager to seize the market and profit from it.” Wang Meng said.
Small and medium-sized brands can gain international popularity through tax-free channels, which has been a very successful case in Korean beauty brands. “Korean duty-free shops have been supporting Korean brands, especially beauty brands for many years. Snowflake show, amore and other brands have changed from the so-called Korean wave marketing to international big brands, selling well overseas.” Martin Moodie, for example.
In fact, China also has a successful case, namely Fiyta Precision Technology Co.Ltd(000026) . This old domestic watch returned to China after becoming popular overseas and became an internationally renowned Chinese brand. Wang Chao, deputy general manager of the retail management department and director of international duty-free business of Fiyta Precision Technology Co.Ltd(000026) group, admitted that the duty-free channel plays a very important role in its overseas expansion, especially when helping them expand a wider international market. Therefore Fiyta Precision Technology Co.Ltd(000026) gradually takes duty-free as the main channel for overseas expansion. “In the 30 countries where we have distribution networks, more than a dozen of them have duty-free channels. We cooperate with more than 10 duty-free operators and have stationed more than 100 duty-free stores and tourism retail channels.”
In Wang Chao’s view, the tax-free channel has the characteristics of high flow, high exposure and high unit yield, attracting brands to enter the tax-free market. After all, this is the first perspective of all countries, and the positioning on the height virtually adds a lot of added value to the brand. Unfortunately, few Chinese brands have been promoted in the duty-free market, especially in overseas duty-free markets.
While expressing regret, Martin Moodie also saw the great potential hidden in China’s duty-free market. He pointed out that in addition to Kweichow Moutai Co.Ltd(600519) and Wuliangye Yibin Co.Ltd(000858) , Fiyta Precision Technology Co.Ltd(000026) watch products, Huawei Xiaomi and other electronic technologies, China also has many exquisite skills worthy of being seen by the world.
21st Century Business Herald reporter noted that domestic brands are also beginning to enter the tax-free channels, starting from the channels of China’s tax-free operators. For example, in December 2020, baicaoji under Shanghai Jahwa United Co.Ltd(600315) banner entered duty-free shops in airports such as Beijing and Shanghai, and nature hall under Kalan banner also entered the duty-free channel of Shanghai cruise port. In the duty-free market of Hainan outlying islands, more domestic brands have begun to appear. This can not only promote the popularity of domestic brands, but also drive the further growth of tax-free sales on outlying islands.
Li Yong stressed that with the promotion of the construction of Hainan free trade port and the implementation of the tax exemption policy for outlying islands, China’s tax-free industry will grow steadily under the double cycle pattern, and the general trend of the global tax-free industry shifting its focus to the Chinese market will not change.
It is worth noting that the duty-free circulation channels for domestic products to enter China have been put on the agenda. In March 2020, the implementation opinions on promoting consumption expansion and quality improvement and accelerating the formation of a strong Chinese market issued by the national development and Reform Commission mentioned that a certain area of domestic commodity sales area will be set up in duty-free stores to guide relevant enterprises to develop high-quality and characteristic domestic commodities dedicated to duty-free channels. In March this year, the general office of the Beijing Municipal People’s government issued the implementation plan for building a “double hub” international consumption bridgehead to support the airport duty-free stores to sell high-quality domestic products and help domestic brands expand the international market. On April 25, the State Council stressed for the fifth time to improve the policy of duty-free shops in the city and planned to build a number of duty-free shops in the city with Chinese characteristics. Domestic products are ushering in a new spring of development.
“I believe that promoting Chinese brands on the duty-free platform will bring huge and immeasurable opportunities.” Martin Moodie said, “this is not only an opportunity, but also a responsibility. Chinese consumers, especially the young people of the post-90s and post-00s generation, are promoting ‘patriotic consumption’, and they hope to see Chinese products wherever they go.”
how to enter the tax-free channel
“At present, the international influence of Chinese local brands is still very weak. We must have enough patience to cultivate and build domestic brands.” Wang Meng said. Promoting domestic brands to go global has a long way to go, and joint efforts at home and abroad are a long-term strategy.
For the new enterprises in the tax-free industry, they need external policies to support their entry. South Korea’s experience in this regard is worth learning from. In order to allow local brands to occupy a place in the duty-free market, from 2011 to 2016, the South Korean government rigidly stipulated the minimum business area of local brands in duty-free stores and “pushed” local brands into the duty-free market. For example, large duty-free shops need to spend 30% of their business area or more than 660 square meters to operate local brands, and the requirements of small and medium-sized duty-free shops are also 20% or more than 330 square meters.
After 2016, South Korean local big brands have successfully risen and gradually entered the international vision. The South Korean government has turned to encouraging the brand development of local small and medium-sized enterprises, further limiting the business area of small and medium-sized enterprise brands in duty-free stores, requiring small and medium-sized brands to account for 10% or more than 288 square meters of the business area of duty-free stores, and large duty-free stores to give more than 864 square meters or 20% of the business area.
In addition to the government’s support, South Korean retailers such as Xinluo duty-free store and Shanghai New World Co.Ltd(600628) duty-free store also consciously assume the responsibility of helping local small and medium-sized enterprises and are proud of it. The two sides have gradually established a new model of win-win cooperation. For example, one of the duty-free operators provides “experimental areas” for new and upcoming brands. If the brand performs well, the “experimental area” will be upgraded to the main store, providing a broader trial space for small and medium-sized brands. At the same time, duty-free shops also provide low interest financial support and other forms of support for small and medium-sized enterprise corporate partners to alleviate the pressure of early entrepreneurship.
Thailand has similar support policies. Antares Zheng, Chief Procurement Officer of Thailand royalty duty-free group, told reporters that there are 5800 brands on sale in Thailand royalty duty-free, including 880 local brand goods in Thailand, with an overall business area of 100000 square meters, providing more than 5000 square meters of business space for local brands in Thailand.
“We found that when tourists enter duty-free stores, they pay more attention to local brands.” Antares Zheng said. In the era of globalization, everything is interconnected, and international chain brands are readily available in every corner of the world. However, the needs of consumers are increasingly showing personalized and diversified colors. Local products that can make a distinctive regional brand are more favored by tourists. In duty-free shops, local brands are easier to be seen by the world.
Experts suggest that when refining the tax exemption policy, relevant departments can refer to the experience of South Korea and Thailand, impose mandatory provisions or encourage Chinese tax-free operators to provide more business area to domestic products, and even Chinese small and medium-sized brands, so as to jointly promote the export and common growth of Chinese goods.
Wang Meng suggested that duty-free shops that introduce high-quality domestic products can be supported by rewarding their franchise fees. Martin moodi believes that more attention should be paid to products with Chinese characteristics in the bidding process of airport retailers. The government can set up special tax allowances for Chinese products in duty-free stores to create incremental sales for local brands.
As a pioneer in China’s duty-free industry, Hainan is actively trying to make Chinese brands international. Winning Chinese recognition is the first step for local brands to go global. Recently, Cui Jian, member of the Party group and deputy director of the Department of Commerce of Hainan Province, said that Hainan will accelerate the introduction of high-end best-selling goods, high-quality goods and Guochao brands produced in China, improve the richness of goods and meet the shopping needs of Chinese people.
“The duty-free industry should be a complete social industrial chain. In the chain, the four nodes of duty-free circulation, production and manufacturing, social economy and cultural output interact with each other to form a virtuous circle and jointly promote the upgrading of China’s duty-free industry to industrialization.” Wang Meng said that in this industrial chain, Chinese local brands take advantage of duty-free circulation channels to go out, internalize China’s far-reaching historical and cultural heritage into products and brands while creating economic value, and tell Chinese stories to the outside world. High quality products and brand concept with charm will further feed the product market and expand the international influence of Chinese brands.
