Duty-free is intrinsically linked to tourism flows. The pandemic resulted in a plunge of almost 70% in 2020 in the world duty-free market as travel halted. However, travel is back with Asia Pacific markets, especially China, reopening borders in 2023.
The global duty-free market is expected to recover to 2019 levels by 2025 and forecast to reach USD168 billion by 2027
Source: Euromonitor International
Shopping is an integral part of travel for mainly Asian travellers. The global duty-free market is driven by Asian travellers, especially Chinese travellers.
China’s appetite for Hainan showcases strong duty-free shopping demand
The global duty-free market has been reliant on Chinese consumers.
China’s outbound duty-free spending represented a USD11 billion market in 2019 before the pandemic, contributing to 20% of global outbound duty-free expenditure sales
Source: Euromonitor International
Chinese consumers, traditionally, are keen to shop abroad when they travel due to price disparity and confidence in authenticity, especially that of luxury goods. While there was a rebound in travelling starting in 2021, travel retail and duty-free lagged behind in terms of recovery. This was due to the absence of mainland Chinese consumption power as China retained its zero-tolerance policy with strict lockdown of borders before 2023. The lack of mainland Chinese consumption power was a global matter and not a regional one, as there is simply no similar scale of spend comparable to that of Chinese consumers.
Chinese border reopening in January 2023 did not herald an immediate V-shape rebound in Chinese travellers’ outbound duty-free expenditure. Price harmonisation strategy amongst brands during the pandemic signals a narrowed price gap when Chinese consumers shop domestically, especially duty-free on Hainan Island.
Hainan is the hottest hub for luxury brands to penetrate the China market after COVID-19. Brands establish their presence through unique omnichannel, immersive and personalised in-store experiences to appeal to the sophisticated Chinese consumers. For example, La Mer opened its largest boutique in April 2023, enabling a first-of-its-kind omnichannel experience including in-store spa services. Hainan is far from being a mature market as brands keep investing in this strategically important Chinese domestic shopping haven to capture Chinese consumption power.
Domestic duty-free shopping is a vehicle to boost domestic consumption in China. There is strong governmental effort to continuously set up and diversify the duty-free shopping channel domestically in addition to Hainan. It can be expected that a significant portion of such Chinese consumption power will stay in the domestic market due to the ease and convenience.
Beyond China: Exploring alternative source markets
China’s prolonged strict lockdown forced duty-free players to diversify and explore alternative source markets to survive. Despite China’s border reopening, domestic shopping, especially domestic duty-free shopping, is a great substitute for outbound shopping. This means the speed of recovery and growth potential will be limited if the reliance on China as a source market persists. Tapping into markets beyond China is expected to continue to be a major strategic focus amongst duty-free players.
European duty-free players are keen to capture UK residents’ consumption power as a key source market. For example, Spanish department store giant, El Corte Inglés, is actively promoting itself as a VAT-free destination to UK visitors. Meanwhile, Korean duty-free giant, Lotte Duty Free, which historically has almost 80% of its sales coming from Chinese consumers, has diverted its attention to groom Southeast Asia and Australasia as source markets. It is actively building brand presence through operating airport travel retail and downtown duty-free shops in the region to reduce its reliance on Chinese consumers. Other than expanding to alternative source markets, markets in Asia Pacific other than China are keen to nurture domestic duty-free consumption as well.
The future of duty-free shopping: Digital, immersive and experiential
With travel in full recovery mode, there is a strong emphasis on diversification, not only geographically to explore alternative source markets, but also in terms of product offering to greet the increasingly sophisticated post-pandemic travellers.
According to Euromonitor’s Voice of the Consumer: Digital Survey in 2022, 39% of global respondents would like to select items and be able to immediately walk out of the store with the purchase executed. This showcases the importance of a seamless omnichannel experience in-store.
Airports undergo digital transformation to support an omnichannel or even fully digitalised shopping experience for hassle-free last-minute essentials shopping. For example, Lagardère launched its first autonomous shop at Hong Kong International Airport for a grab-and-go convenience store experience for pre-flight necessities and last-minute shopping for food and beverages, travel essentials and local souvenirs.
Duty-free players with more premium ranges are reimagining what duty-free shopping looks like.
Almost one in four millennial and Generation Z consumers look for personalised and tailored shopping experiences
Source: Euromonitor’s Voice of the Consumer: Lifestyles Survey in 2023
Duty-free players and airports continue to undergo business transformation to deliver a high-quality experience with personalised and experiential shopping.
Hainan has shown the way that duty-free shopping spaces can be as immersive and experiential as retail shopping spaces. Duty-free players are gearing up to reinvent store spaces both at airports and downtown duty-free stores to cater to the appetite of the post-pandemic experience-driven shoppers.
Download our latest report, World Market for Duty-Free: Unlocking Value and New Opportunities, for in-depth trend descriptions, case studies and strategic recommendations.