In the past, duty-free shops that could only visit the airport were constantly trying out online malls and lowering the purchase threshold. Now everyone can buy them online, and the price is almost the same as before the airport duty-free products.

Titanium degree chart news·Issue 64

Planning and production｜Titan Media Visual Center, Editor｜Liu Yaning, Picture｜Chu Yanmo

Due to the spread of the global COVID-19 epidemic, since 2020, the tourism duty-free retail industry pattern with airports and other entry and exit ports as the core channels is changing. In the past, duty-free shops that could only visit the airport were constantly trying out online malls and lowering the purchase threshold. Now everyone can buy them online, and the price is almost the same as before the airport duty-free products. Recently, the "world's largest" single duty-free shop in Haikou opened, further opening up the Chinese duty-free shop consumption market structure. The online excitement of

has not concealed the sharp drop in offline duty-free shop traffic caused by the epidemic. On October 28, China Duty Free, the leader of China's duty-free shops, released its third-quarter financial report. Affected by the epidemic, the financial report showed that revenue and net profit both fell, of which net profit fell by 70%. How does

continue to expand its territory? After "rushing out" the airport, how big is the market space for Chinese duty-free shops? What new opportunities will the industry have in the future? Titanium Media·Titanium Photo News The latest issue will take you to understand the business practices that cannot be ignored behind the "popularity" of Chinese duty-free shops.

China's duty-free market "rides the wind and waves" and has great potential

China's duty-free industry originated in 1979 and has a development history of more than 40 years. At that time, with the approval of the State Council, China's first batch of duty-free shops were established. During this period, China's duty-free industry was still in the exploration stage, and there were only a few companies that had deployed duty-free business; in the following years, China Overseas Personnel Service Corporation, and China Duty-free Products Company (the predecessor of China Free Trade) were established one after another, and China's duty-free industry entered a period of regularization and professional development.

985-2009, China's duty-free goods industry gradually moved towards marketization, but the policy supervision was strict, the duty-free industry implemented unified centralized management, and detailed regulations were made on the operation of duty-free shops; China's duty-free industry started early, but the policy was not liberalized until the past 10 years.

In 2010, the offshore duty-free policy was piloted in Hainan, and China's duty-free industry entered the stage of international development. In the following years, the sales scale of duty-free goods in my country showed an exponential increase, and the policies of the duty-free industry have become loose.

data shows that from 2011 to 2020, the sales scale of China's duty-free industry continued to expand. China's sales volume of duty-free goods increased from 12 billion yuan to 67 billion yuan, with a compound growth rate of 21.06%. Among them, due to the rapid development of tourism and the improvement of residents' income levels, China's duty-free market grew rapidly from 2017 to 2020, with an increase of 95.3% in four years.

At present, the domestic duty-free industry has a high barrier to entry, and engaging in duty-free business must be approved by the State Council or its authorized government departments. Up to now, there are mainly 10 duty-free licenses in the country, namely China Free Trade, Rishang, Hai Free Trade, Shenzhen Free Trade, Zhu Free Trade, Zhongyi Service, Zhongqiu, Haideng Investment, Haifa Control, and Wangfujing.

Among them, Zhongdui is the leader, with the largest number of Zhongdui stores in China, and is known for off-island duty-free and airport duty-free; Zhuzhou and Shenzhen Free port stores account for a high proportion, while Chuyi service duty-free market duty-free stores account for a high proportion.

Due to the high entry threshold for the industry, the market for the duty-free industry is highly concentrated. As one of the earliest companies to operate duty-free, China Duty Free Company achieved a market share of 86% of the domestic duty-free market with a duty-free sales revenue of 41.3 billion yuan in 2021, maintaining an absolute leading position.

duty-free giant China Duty Free, it is rare to see the rival

China Duty Free is not only the leader in domestic duty-free, but also the world's largest tourism retailer. In 2021, it accounted for 25% of the global tourism retail market with a sales scale of 66.9 billion yuan. Behind are Rakuten , Silla, Dufry and DFS. The market share of these five duty-free shops is 73% in total, and the market concentration is relatively high.

According to the Moody Davidet report, its global ranking has been rising in the past decade, from 19th place in 2010 to 12th place in 2015 and jumping to 4th place in 2019. Affected by the global spread of the new crown epidemic, since 2020, the company with the highest sales in the world's duty-free industry is no longer Dufry, a company that has been in this position for a long time, but China Dufry.

China Free Trade Zone's rapid growth and huge future development space are inseparable from domestic policies dividend .So, how did China Duty successfully expand its territory?

The predecessor of China Zhongdui is China National Travel , established in 1954. The duty-free business began with the restructuring and restructuring of Zhongdui Group in 2004. For a long time, duty-free business has not been the core business of the company. Since 2017, the company has begun to focus on duty-free business, and since then, the company's profitability has increased rapidly.

Annual report data in the past five years shows that the company's growth ability and profitability are relatively outstanding. From 2017 to 2021, China Free Trade Co., Ltd.'s annual revenue increased from 28.282 billion yuan to 67.676 billion yuan, and its net profit increased by 279%, from 2.531 billion yuan to 9.592 billion yuan. A series of expansion actions of

ZhongDian have driven the company's profitability to improve. From 2017 to 2018, China National Travel Service acquired equity in Rishang (China) and Rishang (Shanghai), and China Duty Free directly controlled the three major airport duty-free businesses of Capital Airport, Hongqiao Airport, and Pudong Airport; in January 2019, Hainan Provincial State-owned Assets Supervision and Administration Commission transferred its 51% equity stake in Haidun to China Tourism Group for free; in May 2020, China Duty Free License acquired 51% of the equity of Haidun Company again.

However, in the first three quarters of 2022, China Duty Free achieved operating income of 39.364 billion yuan, a year-on-year decrease of 20.47%, and net profit decreased by 45.48% year-on-year. Regarding the decline in performance, China Duty Free China explained that, on the one hand, the epidemic occurred frequently during the reporting period, the company's operations suffered a major impact, and the net profit attributable to shareholders dropped significantly. On the other hand, during the reporting period, China Duty Free Group completed the issuance and listing of Hong Kong stocks, with an increase in equity capital and a decrease in net profit attributable to shareholders, resulting in a year-on-year decline in earnings per share.

duty-free shops rushed out of the airport, and offshore duty-free has become a new driving force for growth

Since 2020, the impact of the new crown epidemic on airport duty-free retail channels has been fatal. In 2020, the sales of global duty-free giant Dufry has declined with the trend. However, China Dufry's performance has grown against the trend, because the latter has expanded offshore duty-free shops in large quantities.

is divided according to retail channels. China Duty Free's operating income comes from port duty-free shops, offshore duty-free shops, city duty-free shops and other channels. Before the epidemic, port duty-free shops, as a traditional channel, were the largest source of income for China Duty Free, accounting for 66.3% of revenue in 2019. However, under the epidemic, entry and exit are restricted, and the tax-free turnover on the port is greatly affected. Since 2020, the proportion of offshore duty-free shops has gradually expanded, from 27.6% to 72.1%, gradually becoming China's largest duty-free channel. Offshore duty-free shops have obviously become the main source of income for China Duty Free after the epidemic. The rapid development of off-island duty-free business in

can also be seen from the number of stores. In the first quarter of 2022, CDD had 123 port duty-free shops, which generated 3.9 billion yuan in revenue, while only five offshore duty-free shops generated 12.1 billion yuan in revenue, with an average sales of more than 2.4 billion yuan in duty-free goods in the quarter.

Before 2020, the offshore duty-free policy was still in a relatively early stage, with the tax exemption amount only 30,000 yuan/person/year, and there were fewer types of goods. Therefore, the offshore duty-free consumption amount remained at a low level, and the consumption amount increased from 986 million yuan in 2011 to 13.49 billion yuan in 2019.

In 2020, Hainan’s offshore duty-free development ushered in opportunities, and tax-free support policies were frequently issued. Hainan Free Trade Port was built. The offshore duty-free shopping limit increased to 100,000 yuan, the duty-free product categories increased to 45 types, the cancellation of goods above 8,000 yuan line postage and tax , and the adjustment of the number of purchases for duty-free products. Against the backdrop of restricted outbound travel, large amount of overseas consumption returns, and increased policies, Hainan's offshore duty-free sales have developed rapidly, with the shopping amount in 2021 being 49.47 billion yuan, achieving nearly double growth.

In the future, with the expectation of continued return of overseas consumption and the construction of Hainan Free Trade Port, Hainan's offshore duty-free market will have broader room for development.

online business dilutes the impact of offline customer flow, and the city’s duty-free market is worth looking forward to

The new crown epidemic has also accelerated the digital strategic deployment of duty-free shops and opened new sales channels.China Duty Free Company actively deploys e-commerce business, expands e-commerce sales, and develops off-island duty-free online booking mini program "cdf Hainan duty-free" and off-island repurchase mini program "cdf member purchase Hainan". Zhongdu Company classifies online duty-free products ordered and sold as duty-free online sales, and classifies online tax-free products ordered and sold as tax-free online sales, vigorously developing online business, aiming to dilute the impact of low offline customer flow.

From 2020 to 2021, the sales revenue of China Duty Free Online Platform Business was RMB 24.6 billion and RMB 31.86 billion, respectively. Among them, the sales revenue of YouTao Online increased by 21% year-on-year, and the sales of Duty Free Online 62% year-on-year. As of Q1 2022, the tax-free online sales revenue was 1.98 billion yuan, while the tax-free online sales revenue was 5.21 billion yuan. The epidemic has changed consumers' consumption habits, and online business has become a useful supplement to offline business.

China Free Online Channel Business Development performed well, and the number of registered members of its own platform CDF member purchase increased from 400,000 in 2018 to 21.9 million in Q1 2022.

Before the epidemic, China Duty Free Group mainly focused on tax-free business, with tax-owned business accounting for only 2.4%. Under the epidemic, online channels have been mainly composed of tax-owned businesses. Online layout drives high growth in tax-owned businesses. The company's tax-owned businesses have increased from 2.4% to 31.3%, which is expected to become a new growth driver.

In addition to online business, the city’s duty-free market is also worth looking forward to. City duty-free shopping refers to duty-free shopping in duty-free shops in urban business districts. Compared with on-board duty-free and airport duty-free shops, city duty-free shops are closer to urban residents and have relatively lower rental costs, saving time and space costs and improving shopping experience. In 2019, China Duty Free opened five duty-free shops in Qingdao , Xiamen , Dalian, Beijing and Shanghai, and made advance arrangements for duty-free shops in the city.

China's duty-free consumer market, which is in the growth stage and in the policy dividend period, is improving. Whether it is a leading company or a new player, they are facing a huge incremental market. All kinds of participants enter one after another, and the market is in an orderly manner, which will be the norm.

Data source: Titanium Media Technology, Ministry of Commerce, Forward-looking Industry Research Institute, official websites of various companies, Xinda Securities , Pacific Securities , Moody Davidet Report, China Business Intelligence Network , China Duty Free Company Financial Report, China Duty Free Prospectus, Haikou Customs , Southwest Securities , Guosheng Securities, etc.