China is seeing a significant rebound in domestic travel with a very positive impact on duty free sales in Hainan. The Chinese island has become a hotbed of shopper activity as it relentlessly builds its status as a world class shopping destination.

Recent news coming out of China – not least from its much talked about island – provides a welcome shot in the arm for the travel-retail industry.

"We are seeing a significant shift in terms of client briefs – budgets have been reallocated towards China in general, and Hainan in particular," CircleSquare Managing Partner Stéphane Zermatten writes on DFNI.

Air travel is on the up. Shanghai Airport Authority reported that domestic passenger traffic at Hongqiao Airport reached around 90% of 2019 volumes in early July. And customs data in Hainan indicates daily retail spending of between US$8.6 million and US$10 million in July, suggesting that second-half 2020 sales alone could come very close to the 12 months total of 2019.

These numbers are absolutely phenomenal in the current Covid context, but this is not entirely due to chance. The increase in domestic travel and duty free spend is fuelled by several factors including a very insightful research from m1nd-set which has shown that Chinese travellers prefer to plan holidays in China rather than internationally due to the current health crisis.

Meanwhile, the Chinese government is pushing the internal duty free consumption in Hainan with the recent increase of the purchase allowance from RMB30,000 to RMB 100,000. Seven duty free categories have been added, including wines and spirits, as well as a number of other policies and investments in the Hainan Free Trade Zone.

These welcome moves are supported by further causes for optimism in the form of the planned opening of hundreds of thousands of square metres of new stores in Hainan.

Most excitingly, a new duty free shopping city is under construction on the western coast in Haikou, Hainan’s most populous city. It will be situated over 926,000 square meters and will represent an investment of RMB12.86 billion, It is scheduled for completion in 2023, according to the Haikou city government.

From a CircleSquare point of view, we are seeing a significant shift in terms of client briefs – budgets have been reallocated towards China in general, and Hainan in particular. To meet this rising demand, we have set up a new local office in Hainan with a team to support our clients’ needs locally.

There is of course another significant shift happening in travel retail, not least in the Chinese market. Digital is taking the lead over physical, with significant investment from brands in engaging customers online.

To emphasise this point, the percentage of our clients’ activity budgets being allocated to digital have risen sharply in the past six months. The current Covid crisis has been a wake-up call for many brands who now understand that they need to engage with their customers before they are in the shops, to leverage online sales and drive a very much needed additional traffic.

While things remain gloomy in many other part of the world in the face of Covid-19 restrictions and pressures, it is invigorating to see what is now happening in China and Hainan. In these dark days, we need reasons to be cheerful and this will do for starters.