China Duty Free Group (CDFG) entered into an agreement with the Fujian Tourism Development Group to open a large-scale duty-free store in Fuzhou, the capital of the coastal Fujian Province. CDFG will invest $360 million (2.5 billion RMB) in the store and has pledged to further develop Fuzhou’s travel and duty-free retail industry. The store’s details are yet to be released.
Even if CDFG’s $360-million store in Fuzhou opens as scheduled, Fuzhou would not challenge Hainan’s dominance in China’s travel retail landscape: In 2022, Hainan’s duty-free stores generated revenue of $7.1 billion (48.7 billion RMB), down 30 percent year on year, though the decrease was largely attributable to the impact of China’s stringent lockdowns last year. During the Chinese New Year holiday in late January 2023, Hainan’s travel retail industry recovered strongly: Its 12 major duty-free stores generated revenue of $370 million (2.57 billion RMB), a 329 percent increase over the same holiday period in 2019.
New duty-free stores operated by CDFG, which luxury brands have ample experience partnering with, present great opportunities for brands to penetrate China’s lower-tier cities. Because the purpose of such stores is to unlock Chinese consumers’ spending power, they are likely to be located in emerging areas across China that are yet to have a substantial luxury presence. For instance, Fuzhou itself is only a second-tier city (below first-tier and new first-tier metropolises), where average disposable income was $3,741 (25,730 RMB) per capita in the first half of 2022. That’s even lower than the $5,241 (36,048 RMB) in Xiamen, Fujian’s other major city. However, in December 2022, Louis Vuitton opened its boutique in Fuzhou’s Mixc, demonstrating the city’s luxury consumption potential.
The race to unveil new duty-free stores outside of Hainan could have started already. In early January, Beijing-based Wangfujing Group launched its first duty-free cross-border experience shop in Beijing that will include 40 renowned international brands. With CDFG joining the fray, luxury labels should pay extra attention to new duty-free retail opportunities appearing across China.
