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While other parts of the retail world are struggling. French company already developed a new retail complex in Hainan, China

On December 30th, 2020, the French Travel Retail group Lagardère opened a major Duty-Free shopping complex in Sanya, Hainan Island. The five-floor, 323,000 square foot mall is a collaborative venture between Lagardère Travel Retail and the state owned HTI (Hainan Tourism Investment Development Company).

The initial service and supply agreement between HTI and Lagardère has helped bring 278 international brands to Hainan, including leading manufacturers of fashion, accessories, cosmetics, perfumes, designer watches and jewelry and children’s toys, as well as reputed producers of fine wines and liquors, gourmet foods and confectionery. Several high-profile designer labels, including Hublot, Gucci Makeup, Blancpain, Lanvin and MaxMara Weekend made their exclusive debut in Hainan at the Lagardère shopping complex launch.

Outside of the PRC, airport outlets are shuttered around the world, and the few travelers making their way through international Duty-Free hubs pass by quiet, empty spaces, surrounded by luxury brand storefronts that are not open for business. Meanwhile, travel and shopping in Mainland China now proceeds at an even more vigorous pace than before the pandemic, with crowds of ‘revenge travelers’ and young professionals with excess disposable income making up for lost time and missed experiences.

Hainan is now a thriving destination for Chinese travelers with international travel effectively on hiatus, and luxury retail is rapidly developing as duty-free allowances entice travelers and shoppers who might otherwise make their purchases abroad. International designer labels have all taken notice, and Hainan has become the de-facto Duty-Free luxury retail capital of the world, under the present circumstances. While the rest of the world will eventually resume business and likely see strong rebounds in consumer spending and holiday travel, Hainan’s primacy in the world’s most important luxury market will also continue over the long term.

According to Eudes Fabre, Lagardère’s CEO for the North Asia region, “the Hainan pie is big and growing,” with “room to expand and create more value for everybody.” The Lagardère shopping complex disrupts the retail market in Sanya, where the state-owned enterprise China Duty Free Group’s Duty-Free mall was virtually unchallenged.

Meanwhile, other state-owned enterprises and collaborations between government-owned and private organizations are taking shape. CNSC has opened the initial phase of its major Duty-Free shopping complex, spanning 360,000 square feet on the southern coast of Sanya. The project will eventually span 2.1 million square feet. The Chinese retail conglomerate Suning Group has also signed an agreement with HTI, while collaborative projects in Haikou between Alibaba and Dufry and Louis Vuitton’s DFS and Shenzhen Duty Free Group are also underway.

The Lagardère shopping complex indicates a notable pattern with Duty-Free outlet openings in Hainan. New Duty-Free malls launch previously unrepresented brands in the market in order to differentiate themselves from their competitors and expand the overall business. Major retail developers now show a keen interest in brand marketing through their retail infrastructure, and securing distribution agreements with any Hainan-based retail agent could be one of the most effective ways to make a strong start in China, particularly during this moment, when demand outstrips supply and developers are rushing to serve the market while suppliers arrange additional cargo flights to the island.

The proliferation of major Duty-Free shopping outlets across Hainan reflects the direction of the nation’s overall development, as the ‘dual circulation’ initiative shifts from an export-led growth model to a domestic consumption-based engine. As China seeks to develop regional economic advantage across the country in order to more evenly generate national prosperity, Hainan is already moving forward as a major travel and shopping hub.

The rebound of China’s domestic economy, however, along with the extended downturn overseas, has accelerated Hainan’s growth beyond all projections. Duty-Free grew by 200% year on year between July and October 2020 according to Chinese customs data, and they are projected to grow by 700% by 2030. While last year’s sales figures can be attributed to the increased duty-free allowance in Hainan, an equally important factor is the shift towards domestic luxury retail, a broad cultural trend that will continue over the long term as the retail infrastructure continues to develop and the Chinese consumer mentality with regards to Hainan changes over the long term as high-end holiday and shopping packages gain traction through development and marketing initiatives.

As China continues to take center stage in the global economy, Hainan’s duty-free sector burns particularly brightly during this transition period between the tail end of the pandemic and the gradual recovery of international travel and economic activity. The momentum of this moment is not only an unprecedented opportunity in the global luxury products market, but also an indication that Hainan will be an important luxury retail hub over the long term.