In the first half of 2024, duty-free sales on the outlying islands of Hainan were 18.5 billion yuan, a year-on-year decrease of 30%. Although overall sales declined, monthly data showed a gradual narrowing of the decline.
The Zhitong Finance App learned that Haitong International released a research report saying that in the first half of 2024, duty-free sales on the outlying islands of Hainan were 18.5 billion yuan, a year-on-year decrease of 30%. Although overall sales declined, monthly data showed a gradual narrowing of the decline. The overall share of cosmetics sales has declined, while the share of jewelry, watches, and other categories has increased, and duty-free shoppers tend to buy a variety of duty-free products. Diversified shopping trends help broaden the duty-free layout and promote the development of duty-free businesses. It is worth noting that, according to a report by Xinhua News Agency on August 3, the State Council issued “Opinions on Promoting the High-Quality Development of Service Consumption”. The “Opinions” issued this time are expected to boost consumer confidence, fix market expectations, and focus on: China's exemption (601888.SH), etc.
Haitong International's main views are as follows:
1H24 duty-free sales on Hainan's outlying islands fell 30% year on year, and the decline narrowed in June
In the first half of 2024, duty-free sales on the outlying islands of Hainan were 18.5 billion yuan, a year-on-year decrease of 30%. Although overall sales declined, monthly data showed a gradual narrowing of the decline. In May 2023, the Hainan Provincial Market Supervision Bureau issued the “Notice on Further Carrying Out Work Related to Combating and Controlling Tax-Exempt “Package Purchase” Smuggling on the Outlying Islands”, which calls for a resolute crackdown on and control of duty-free “package buying” smuggling on the outlying islands. Haitong International believes that in the first half of '23, duty-free sales on Hainan's outlying islands had an impact on the “proxy purchase base”. As the base declined in the second half of the year and consumption recovery progressed, the Hainan outlying islands duty-free market is expected to recover further.
Decomposition of factors influencing sales: recovery in customer flow, decline in customer unit price and conversion rate
In terms of passenger flow, passenger flow on the outlying islands of Hainan was +20% and -1% in 1-2 Q24, and passenger flow gradually recovered. In terms of customer unit price and conversion rate, the unit price for duty-free shoppers on the outlying islands of Hainan decreased by 21% and 26% year on year in 1-2 Q24, and the conversion rate decreased by 4.8 pct and 3.7 pct year over year. The average customer unit price for 1H2024 was 5,242 yuan, a year-on-year decrease of 24%. In addition, the number of shoppers in the first half of 2024 was 3.41 million, a year-on-year decrease of 10%; due to the crackdown on proxy purchases, the number of shopping items also showed a downward trend.
Categories tend to diversify, and cosmetics account for less than 40%
The share of overall cosmetics sales declined in the first half of 2024, while the share of jewelry, watches, and other categories increased, and duty-free shoppers tend to buy a variety of duty-free products. Diversified shopping trends help broaden the duty-free layout and promote the development of duty-free businesses. In terms of mainstream products, cosmetics, jewelry, and watches are still the mainstream duty-free shopping products. From 1-3Q22 to 6M24, these three categories occupied the top three sales for a long time. Cosmetics accounted for 37.1% of sales in 1H24, jewelry 16.6%, and watches 10.0%.
Global perspective: The overall recovery of China's luxury goods market is slow, and brands with strong luxury/value preservation attributes are better than others
Luxury market: Bain expects sales in China's luxury goods market to grow by about 12% year-on-year in 2023, only returning to 98% in 2021. By region, 1Q24 brands experienced negative growth in the Asia-Pacific region. By brand, Hermes1Q24's performance growth rate is better than others; Prada benefited from Miu Miu's strong performance and achieved superior growth. Korea Duty Free Market: The purchasing power of foreign customers is weakening.
Investment advice: The wealth effect still affects the consumption behavior of customer groups. In the future, we still need to observe inflection points in the data, and focus on improving the quality and efficiency of the leaders themselves. In the context of central enterprise management assessments, the management momentum of leading duty-free enterprises is expected to be further strengthened. Furthermore, as international flights gradually resume, it is recommended to pay close attention to the implementation time and rules of the city's tax exemption policy. According to a report by Xinhua News Agency on August 3, the State Council issued “Opinions on Promoting High-Quality Development of Service Consumption”. The “Opinions” issued this time are expected to boost consumer confidence and repair market expectations. Focus on: China Finance and Communications (601888.SH), Wangfujing (600859.SH); Recommended focus: Haiqi Group (603069.SH).
Risk warning: risk of exchange rate fluctuations; economic recovery falls short of expectations; market competition increases risk.