According to Euromonitor International’s new global briefing “The Evolution of Duty-Free Retailing: Past, Present and Future,” growth in Chinese international travellers has benefited the duty-free sales channel as Chinese travellers look to save money by buying at duty free shops.
Luxury goods are taxed very heavily within China, and the additional appeal of the status associated with these products has ensured that they have become an important part of duty-free retailing for these travellers.
China Duty-free Spend by Product 2011
Note: Graphic uses data from Autogrill’s 2011 annual report
Availability, price, and status drive sales
Whilst a growing number of luxury brands are entering the Chinese market, many labels are simply not available. This issue is exacerbated in second and third tier cities which have limited access to flagship stores and boutiques opened by luxury brands in first tier cities. The limited supply and availability of luxury goods in large parts of China has
driven Chinese travellers to purchase luxury items from outside of China. High end department stores in major tourist and business destinations such as London and Seoul have been the primary beneficiary of this trend.
Another consideration for Chinese travellers is price. Many foreign brands choose to position their products higher in China than they ordinarily would in their countries of origin. This helps to create a feeling of exclusivity, which is particularly appealing in the world’s most populous nation. Furthermore, luxury items are subject to higher sales taxes, making these products even more expensive. Consequently, luxury items sold abroad are often perceived as “cheap” in comparison to Chinese retail prices. This is a major driver of duty-free sales.
Many Chinese consumers, including the more affluent individuals, have yet to travel beyond China. Given that even Hong Kong and Macao require visas for Chinese citizens, travel abroad is more restricted. The minority who do travel abroad are therefore held in high regard because of the wealth and status attached to foreign travel. The ability to show off by purchasing luxury items or products exclusive to duty-free outlets is an additional benefit for Chinese travellers purchasing duty-free products.
Source: Euromonitor International
One product mix fits all is no longer likely to work in duty-free
The growing importance of consumers from developing markets is likely to skew product preferences. As a result, duty-free retailers can no longer afford to offer the same product mix to all passengers. Alcoholic drinks and tobacco have for a long time been the best selling products at duty-free stores. However, the lower prices of these products in emerging markets will present a challenge to retailers hoping to entice travellers from developing markets. This will be especially true for duty-free shops where Chinese travellers are prevalent.