1、0 2023 KPMG Advisory(China)Limited,a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.Printed in Chinese Mainland.2

2、023 Hainan Travel Retail Market WhitepaperResilience and reshaping,amid risksApril 2023By KPMG China and The Moodie Davitt Report1 2023 KPMG Advisory(China)Limited,a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent member firms affiliated

3、 with KPMG International Limited,a private English company limited by guarantee.All rights reserved.Printed in Chinese Mainland.ForewordIt is our pleasure to present the 2023 Hainan Travel Retail Whitepaper in the 3rd China International Consumer Goods Expo,after the release of the 2nd edition in Ju

4、ly 2022.With the gradual easing of the national COVID-19 anti-pandemic policies in December 2022 and the reopening of the cross-border business and leisure travelling,Hainan,as one of the hotspots for domestic travel and spending,experienced a strong rebound in its travel retail performance at the b

5、eginning of 2023.The islands tourism infrastructure,from roads to hotels,from retail to restaurants,is undergoing significant investment and construction at a rapid pace,laying a solid foundation for creating more unique consumer experiences for clients.As witnessed by the opening of Haikou Internat

6、ional Duty Free Shopping Complex and Wangfujing International Duty Free Harbor City in Wanning,heavy investment continues to be poured into the sector.This suggests a robust confidence in the future of the business.In March 2023,the new policy of Guaranteed pick-up and Buy and pick-up for offshore d

7、uty-free shopping further deepened the benign development of the Hainan offshore duty-free market.With the planned seal-off coming in 2025,it is an exciting moment for consumer market on the island,with brands focusing intensively on the viability of their future business models,especially the impac

8、ts to stakeholders along the supply chain due to the new Sales Tax scheme.Brands are acutely aware of establishing proper Hainan structures and vehicles that will empower their commercial capabilities and allow synergy with the Greater Bay Area and the rest of mainland China.We believe that Hainans

9、duty-free shopping,as its golden signature,will continue to achieve more impressive results in the future.In this whitepaper,we will delve deep into key trends impacting the retail market in China,explore Chinese consumer buying behavior,and identify consumer personas.We will also examine how the up

10、coming operation of the free trade port and the closing of the borders will further promote the transformation of the game rules in the Hainan travel retail market.Our goal is to provide more professional insights for duty-free operators and brands competing in the Hainan travel retail market.Throug

11、h this paper,KPMG and The Moodie Davitt Report present insights on the Hainan travel retail market,with the goal of enabling duty free operators and brands to seize opportunities in this rapidly evolving landscape.Nicole ZhangSenior Office Partner,HainanKPMG ChinaMartin MoodieFounder&Chairman,The Mo

12、odie Davitt Report2 2023 KPMG Advisory(China)Limited,a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.Printed in

13、Chinese Mainland.Contents01Hainan travel retail business where next?0302Evolvement of China consumers in the post-pandemic era15032023 is the ideal time when we set the course for victory for Hainan!26Final word333 2023 KPMG Advisory(China)Limited,a limited liability company in Chinese Mainland and

14、a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.Printed in Chinese Mainland.01Hainan travel retail business where next?4 2023 KPMG Advisory(China)Limited,a limited

15、liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.Printed in Chinese Mainland.Travel retail embraces a vast worldwide busine

16、ss sector focused,as the name suggests,on shopping by travellers(be they domestic or international).It is a sub-sector of two principle)parent industries aviation and tourism and therefore anything that impacts those sectors,positively or negatively,invariably has a knock-on impact to travel retail.

17、Travel retail is anchored by the duty-free channel goods sold free of duty and tax,usually to international travellers.However,in three cases(Hainan Free Trade Port in China,Jeju in South Korea and Okinawa in Japan),duty-free rights exist for domestic travellers so-called offshore duty-free.Duty-fre

18、e sales take place at airports and seaports;certain downtown duty-free stores;onboard airlines,cruise ships and ferries;at land border crossings;in specialised stores serving diplomatic and military personnel;and online through established duty-free retailers.Products that can be sold duty-and/or ta

19、x-free vary by country and jurisdiction(there is no duty-free between European Union member countries,for example).Goods bought under these rules can be brought into destination countries in varying quantities,called allowances.The Hainan Free Trade Port annual offshore duty-free allowance of RMB100

20、,000(approximately USD15,470)is the most generous(and we think far-sighted)in the world.Defining the travel retail and duty free sectorsUntil 2020,the duty-free industry,invented at Shannon Airport on the west coast of Ireland in 1947,was a vibrant and highly resilient business sector,historically b

21、ouncing back quickly from regional crises(natural disasters,recessions,currency fluctuations,economic woes etc)and even international ones(SARS,two Gulf wars).But the COVID-19 pandemic changed all that.Being a global industry offered no protection from a global pandemic;conversely it exposed sector

22、stakeholders to it on all fronts.Global tourism suffered its worst year on record in 2020,with international arrivals dropping 74 percent year-on-year,according to the United Nations World Tourism Organization(UNWTO).Destinations worldwide welcomed 1 billion fewer international arrivals in 2020(down

23、 to 409 million)than in the previous year due to the COVID-19 crisis,the related fall in demand and widespread travel restrictions.With passenger traffic collapsing at most of the worlds airports,travel retail was robbed of its bloodline through most of 2020 and to a lesser but still challenging ext

24、ent in 2021(a marginal increase to 454.8 million visitor arrivals).The pandemic represented the most severe and sustained crisis in travel retail industry history.A global market that went into freefall with one remarkable regional exception,Hainan.More of that later in this paper.How the COVID-19 c

25、risis impacted the sector 2020-20215 2023 KPMG Advisory(China)Limited,a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights res

26、erved.Printed in Chinese Mainland.will Hainan suffer as a result?Passport ownership:01According to CGTN,around 10%of Chinas 1.4 billion population have passports.That means 90%of people can currently only travel and shop duty free domestically.Also,a significant number of citizens now hold expired p

27、assports and visas after such a lengthy suspension of issuances and renewals.Traveller confidence:02When it comes to Chinese travel and spending,a global return to pre-pandemic numbers is going to take considerable time especially considering the impact COVID had on consumer confidence about the saf

28、ety of foreign travel.As capacity is ramped up,international flights remain expensive.Big-picture dynamics:03In line with central government policy,the long-term trend towards repatriation of luxury spending from oversea is positive news for Hainan.As 2022 progressed,borders all around the world ste

29、adily opened.By the end of the year,international visitor arrivals had risen to 917 million,a comparatively modest-37%shortfall compared to 2019 However,arrivals to Asia lagged badly at-77%compared to the pre-pandemic period,largely thanks to the tight border constraints in Mainland China,Taiwan,Hon

30、g Kong and Macau.That all changed in early 2023 as Beijing lifted its COVID-19 and travel restraints with the Hong Kong and Macau Special Administrative Regions mirroring the response.Based on UNWTOs forward-looking scenarios for 2023,international tourist arrivals could reach 80%to 95%of pre-pandem

31、ic levels this year,depending on the extent of the economic slowdown,the ongoing recovery of travel in Asia and the Pacific and the evolution of the crisis in Ukraine,among other factors.Even more bullishly,in February 2023 the International Civil Aviation Organization(ICAO)predicted a“complete and

32、sustainable recovery”in air travel this year,with volumes expected to surpass pre-pandemic levels.ICAO said that after a near-three year downturn,passenger traffic in 2023 is set to return to pre-pandemic levels on most routes by the first quarter,and to be+3%higher than 2019 levels by the end of th

33、e year.The big question for the travel retail sector internationally and in Hainan is what will happen in terms of the outbound Chinese travel market.And as it normalises,will Hainan suffer as a result?The following factors suggest not:Market recovery 2022-2023 and beyondAnd as outbound Chinese trav

34、el market normalizes,6 2023 KPMG Advisory(China)Limited,a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.Printed

35、in Chinese Mainland.Natural and man-made attractions:04Hainans attractions,both natural and man-made attractions are compelling.A pristine natural environment combined with numerous tourist attractions,fast-improving tourism infrastructure and serves on the one hand and world-class shopping(and,incr

36、easingly,dining and hotels)on the other.The latter is bolstered by the worlds highest duty free allowance(CNY100,000 annually)and the habit of domestic duty free shopping that has formed since 2011 and accelerated through the pandemic.Geographic proximity:05In an uncertain world,Hainan offers an eas

37、y and safe travel option with no linguistic or cultural barriers.Hainans Free Trade Port programme:06This extraordinarily ambitious long-term programme continues to attract investment and services to the island province.Tourism is a key tenet of the programme and within that sector duty free shoppin

38、g is an integral element.As witnessed by the opening of CDF Haikou International Duty Free Shopping Complex and Wangfujing International Duty Free Harbour City in Wanning,heavy investment continues to be poured into the sector.This suggests a robust confidence in the future of the business.Enhanceme

39、nts to the duty free shopping policy:07Continued enhancements of the offshore duty free pricing over recent years most notably the big increase in the annual allowance and number of categories in July 2020 have given the sector tremendous momentum.We expect continued favourable official treatment in

40、 the years ahead to help maintain the sectors competitive edge.This level of government support unrivalled in the duty free industry worldwide manifested itself again in March 2023 with crucial changes approved by the State Council to the duty free shopping pick-up policy.The enhanced policy is desi

41、gned to make shopping easier and more immediate for consumers and ease logistical constraints for retailers.The two key principles of the new policy Guaranteed pick-up and Buy and pick-up will simultaneously boost shopping convenience and overall sales.This report considers Hainans prospects within

42、that improving global context;examines how it has performed during the crisis;and evaluates its prospects in the years ahead.7 2023 KPMG Advisory(China)Limited,a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent member firms affiliated wit

43、h KPMG International Limited,a private English company limited by guarantee.All rights reserved.Printed in Chinese Mainland.Asia Pacific53.6%Europe24.5%Americas13.6%Middle East7.3%Africa1.0%Source:Generation ResearchAsia Pacific68.2%Europe16.0%Americas8.4%Middle East6.6%Africa0.8%2019 regional break

44、down2021 regional breakdownAccording to Generation Research,the global travel retail&duty-free industry was worth US$86.4 billion in 2019,up+10%over 2018.The same sources 2020 and 2021 figures,though,reveal the brutal impact of the pandemic with worldwide sales collapsing by-47.6%to just US$45.3 bil

45、lion in 2020,followed by a+25.6%year-on-year rise from a low base in 2021 to US$55.3 billion.2022 figures are not yet available.All regions were adversely affected in 2020 and 2021.Except one.Hainan,where sales rose+127%year-on-year in 2020 and,remarkably,by a further+84%in 2021.For the purposes of

46、assessing the industrys post-pandemic future,we believe 2019 serves as the appropriate global benchmark.We anticipate a strong year in 2023,with some retailers exceeding 2019 levels notably Dubai Duty Free,historically the worlds largest single airport retail operation.After exceeding targets in Q1

47、2023,Dubai Duty Free is projecting all-time high sales of US$2.2 billion to US$2.3 billion this year,well ahead of the 2019 record of US$2 billion.The charts below,courtesy of Generation Research,show the 2019(pre-pandemic)and 2021(mid-pandemic)breakdown of global duty-free sales by region and produ

48、ct category.They also paint a revealing picture of the impact of the pandemic.The global duty-free industry in numbersHainanAll regions were adversely affected in 2020 and 2021.Except one.8 2023 KPMG Advisory(China)Limited,a limited liability company in Chinese Mainland and a member firm of the KPMG

49、 global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.Printed in Chinese Mainland.43.7%14.8%13.3%8.6%7.4%6.5%Fragrances&cosmeticsWines&spiritsFashion&accessoriesTobacco goodsWatches,jewellery&fin

50、e writingElectronics,gifts&otherConfectionery&fine food5.8%57.0%11.2%10.6%6.5%6.1%5.1%3.5%Source:Generation Research(ContactGeneration.se)Source:Generation Research(ContactGeneration.se)Duty free&travel retail sales by region 20092021(in US$millions)Region20092010201120122013201420152016201720182019

51、20202021Asia Pacific10,295.213,000.216,665.619,902.222,317.924,729.425,294.427,375.330,827.338,831.9 46,370.4 32,285.237,723.3Europe16,176.116,758.818,910.419,272.320,139.320,581.918,856.718,732.920,060.720,802.7 21,174.8 6,437.38,861.5Americas7,605.28,702.710,280.810,855.711,162.511,725.311,276.410

52、,853.411,655.211,799.8 11,728.0 4,048.74,632.1MiddleEast3,466.44,026.94,446.15,005.85,560.65,867.35,810.85,573.35,982.76,362.8 6,290.9 2,174.73,665.2Africa657.2711.3697.0764.0819.7848.4761.7778.1786.9808.6 879.4 316.4450.3Worldtotal38,200.043,200.051,000.055,800.060,000.063,752.362,000.063,313.069,3

53、12.978,605.7 86,443.5 45,262.355,332.4Source:Generation Research(ContactGeneration.se)Duty free&travel retail sales by product category 20092021(in US$millions)Category2009201020112012201320142015201620172018201920202021Fragrances&cosmetics10,708.012,060.114,344.115,793.717,260.319,289.519,763.521,4

54、64.425,605.931,324.137,769.927,173.331,513.1Wines&spirits6,681.97,367.88,432.69,091.09,862.310,437.010,150.710,463.311,350.712,165.812,769.73,662.55,882.4Fashion&accessories4,761.55,792.27,007.47,955.78,755.29,272.98,998.39,128.99,540.910,806.211,459.35,042.26,211.5Tobacco goods6,006.06,416.17,300.9

55、7,626.87,851.87,908.97,353.77,228.87,229.67,827.17,453.52,649.93,352.2Watches,jewellery&fine writing3,589.24,073.35,139.25,767.86,210.86,601.85,933.95,435.45,672.16,022.76,355.52,958.33,620.1Confectionery&fine food3,167.13,503.63,941.74,376.64,745.15,079.64,875.34,791.54,993.45,129.35,056.21,606.71,

56、920.0Electronics,gifts&other3,286.33,987.34,834.15,188.55,314.65,162.64,924.74,800.84,920.25,330.45,579.42,169.42,833.1World total38,200.0 43,200.051,000.055,800.060,000.063,752.362,000.063,313.069,312.978,605.7 86,443.5 45,262.355,332.42019 category breakdown2021 category breakdownFragrances&cosmet

57、icsWines&spiritsFashion&accessoriesTobacco goodsWatches,jewellery&fine writingElectronics,gifts&otherConfectionery&fine food9 2023 KPMG Advisory(China)Limited,a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent member firms affiliated with

58、 KPMG International Limited,a private English company limited by guarantee.All rights reserved.Printed in Chinese Mainland.Source:Generation Research(ContactGeneration.se)Fragrances&cosmeticsWines&spiritsFashion&accessoriesTobacco goodsWatches,jewellery&fine writingConfectionery&fine foodElectronics

59、,gifts&otherDuty free&travel retail sales by region 20092021(in US$millions)Duty free&travel retail sales by product category 20092021(in US$millions)05,00010,00015,00020,00025,00030,00035,00040,00045,00050,000200920102011201220132014201520162017201820192020202105,00010,00015,00020,00025,00030,00035

60、,00040,00045,00050,0002009201020112012201320142015201620172018201920202021Source:Generation Research(ContactGeneration.se)Asia PacificEuropeAmericasMiddle EastAfrica10 2023 KPMG Advisory(China)Limited,a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation o

61、f independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.Printed in Chinese Mainland.By 2021,Asia Pacific accounted for 68.2%of worldwide sales up sharply from 53.6%in pre-pandemic 2019.With much of the duty free world i

62、n hiatus,this transformation was driven dominantly by the Hainan offshore duty-free sector,referred to as the lighthouse of travel retail by The Moodie Davitt Report.Also note the sharp rise in category market share for cosmetics and perfumes,up from 43.7%in 2019 to 56.9%in 2021.This is a direct ref

63、lection of Hainans influence where cosmetics generally and skincare specifically are the dominant category given the rapidly growing Chinese interest in perfume,we also expect to see Hainan account for a growing share of that category in the future.Preliminary Top 3 Travel Retailer rankings 2021(By

64、turnover,million)Source:The Moodie Davitt ReportNote:Figures translated from local currency to Euros at 31 December 2021 exchange rates.China Duty Free GroupLotte Duty FreeThe ShillaDuty Free9,3694,0463,96611 2023 KPMG Advisory(China)Limited,a limited liability company in Chinese Mainland and a memb

65、er firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.Printed in Chinese Mainland.Despite its 2022 challenges due to the COVID-19 situation,Hainans offshore duty free sector ra

66、nks as the global travel retail sectors singular success story of the 21stcentury.Although now ranking as the number one duty free market for many leading beauty houses,it should be remembered that the business is little more than a decade old.It has grown from small beginnings a single shop in Sany

67、a to a multi-billion dollar industry featuring some of the worlds finest(and certainly biggest)duty free stores.As mentioned,Hainans offshore duty free sector rose by+127%and+84%respectively through 2020 and 2021 in both cases from an all-time record high base.Despite a COVID-driven slowdown in late

68、 2022,when stores in Sanya were closed for several weeks and those in Haikou were also affected,the market has rebounded strongly in early 2023 following the lifting of COVID-related travel constraints and central governments successful handling of the crisis.The whole sector has benefited time and

69、again since 2011 from supportive government policies,most notably on July 1,2020 when the annual offshore duty-free shopping allowance was tripled to RMB100,000.Simultaneously,the number of categories was extended from 38 to 45(including cell phones and alcohol,the latter with a 1.5 litre per trip a

70、llowance);the previous single purchase limit of RMB8,000(USD1,250)was removed;and the limit on cosmetics skus(or stockkeeping units)raised from 12 to 30.As we noted in last years report,any chronicling of travel retail industry history,that policy decision will surely rank as one of the most far-sig

71、hted,consumer-friendly,business-supporting measures of all time.The financial results have been plain to see.That support has manifested itself in the arrival of several new licence-holders since late 2020.There are 12 duty-free shops in Hainan covering Sanya,Haikou,Qionghai and Wanning.The business

72、 area of offshore duty-free shops across Hainan exceeds 500,000 m2,and the number of brands settled in exceeds 1,500.In one of the biggest changes to the offshore duty free shopping policy,major changes were made to the pick-up policy for duty free purchases in March,which will be taken effect since

73、 1 April 2023.Previously,consumers could only order their shopping and retailers had to package and deliver to the airport,seaport or designated self-collection point before the consumer left the island.The improvements,designed to bring much greater convenience to shopping on the island,are broadly

74、 categorised into two key areas Guaranteed pick-up and Buy and pick-up.The measures are also certain to increase the conversion rate of visitors to shoppers and reduce logistics costs.Guaranteed pick-up strictly regulated in terms of inspection at departure is expected to boost sales of top luxury i

75、tems such as watches&jewellery.While with the implementation of the immediate buy and pick-up policy,tourists can directly purchase duty free a limited amount of fragrances,bags,clothing,silk scarves,sunglasses,belts,sporting goods and other products every time they leave the island.The Hainan succe

76、ss storyall-time record high base.Hainans offshore duty free sector rose by+127%and+84%respectively through 2020 and 2021 in both cases from an 12 2023 KPMG Advisory(China)Limited,a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent member

77、firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.Printed in Chinese Mainland.Government support for the offshore duty free industry is once again being underlined by the hosting of the third annual China International Consumer Produc

78、ts Expo(Hainan Expo)on April 11-15.The Expo,already established as one of Asias premier exhibitions,recognises that offshore duty-free is a key component of Hainans Free Trade Platform programme.The programme,considered of key national importance,will see an island-wide Free Trade Port system focuse

79、d on trade and investment liberalisation created in the Hainan FTP by 2025(with full maturity by 2035).This hugely ambitious event offers international brands and service companies a crucial opportunity to showcase their wares in China and,conversely,for national and local Chinese brands to promote

80、themselves to an influential global audience.The offshore duty free industry is a symbol of the Chinese governments ambition to retain travelling spend inside the country and to boost domestic consumption.As a market Hainan has its own rules,its own unique customer base(predominantly Chinese)and is

81、an integral component of a“mega-trend”to maximise Chinese consumption at home.Hainan offshore duty free plays a dual role for brands it is a big volume and value channel in its own right,but it also offers an incalculably priceless showcase to consumers across the vast Chinese nation.As such,the Hai

82、nan success story seems set to run and run.Battle of the giants:Hainan vs Korea Hainans burgeoning offshore duty free sector success of recent years presents an interesting comparative case study with the worlds biggest duty free market the Republic of Korea.The prolonged COVID-19 crisis affected bo

83、th markets at various times in various ways.Whereas Hainan flourished during 2020 and 2021 as Chinese citizens,unable to travel overseas,flocked to the island province,South Korea was robbed of its commercial bloodline of recent years the travelling China.With Korean nationals being unable to travel

84、,Korean duty free became overwhelmingly(90%+)about selling to large-scale daigou traders,a reliance that has left the sector worryingly vulnerable after Korea Customs Service(KCS)moved in late 2022 to curb excessive commission payments to travel agents facilitating the daigou business.Hainan offshor

85、e duty free stores generated sales of CNY60.17 billion(US$9.47 billion)in 2021,an+84%increase year-on-year.The results include duty free sales of CNY50.49 billion(US$7.94 billion),up+83%year-on-year,with the balance being accounted for by tax paid sales.In 2022,affected by the sporadic COVID-19 outb

86、reaks on the Mainland and at one point in Hainan the offshore duty free sector was hit hard and did not complete the projected target.However in 2023,Hainans expected target is to surpass CNY80 billion in sales up by a third on the record 2021 results.In the first five days of this years Spring Fest

87、ival holiday(January 21-25),the provinces 12 off-island duty-free stores recorded total sales of CNY1.685 billion,up+20.03%over the first five days of the Spring Festival in 2022 and by+325%over the first five days of the pre-pandemic Spring Festival in 2019.13 2023 KPMG Advisory(China)Limited,a lim

88、ited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.Printed in Chinese Mainland.In South Korea the duty free market was f

89、lat in 2022,easing by-0.6%year-on-year in 2022 to KRW17.67 trillion(US$13.62 billion).The performance represents a-24.12%deficit compared with the record pre-pandemic year of 2019.As a result of the KCS warning about perceived excessive commissions paid to travel agencies,Korean duty free sales in J

90、anuary 2023 slumped by-30%year-on-year to KRW797.4 billion(US$603.6 million).The figures from the Korea Duty Free Association show a-41%decline month-on-month from December 2022.The impact has been particularly severe in the key cosmetics category,which accounted for more than 70%of total Korean dut

91、y free market sales last year.While February sales rebounded by almost+37%month-on-month to KRW1.09 trillion(US$838.9 million)in February,driven by a rebound in the daigou spend(the KCS view is not yet at least enshrined in law),many informed observers believe some form of control over the daigou bu

92、siness will be introduced.The February figures show a drop in total shopper numbers but a rise in spending volume,implying a sharp increase in sales to daigou resellers.As noted in the 2022 Hainan Travel Retail Market White Paper:A Powerhouse of the New Retail,Korea has largely become a Chinese mark

93、et of sorts a one-nationality dependence that has Korean travel retailers deeply concerned and seeking means to diversify.The return of outbound travel and therefor outbound shopping by Koreans will help normalise the sector but great uncertainly lingers over a market that for so long reigned suprem

94、e globally.In contrast,as memories of the COVID-19 crisis recede,Hainan offshore duty frees future looks very positive.Over the past five years the sector has generated extraordinary sales of some CNY130+billion and the industry has a lot of growth potential yet.Hainan offshore duty free sales v Sou

95、th Korea duty free sales 2015-2022(in US$billions)Source:The Moodie Davitt ReportNotes:*Includes US$1.53 billion tax/duty paidNotes:*At prevailing exchange rate,includes US$2.008 billion tax/duty paid,HainanSouth Korea13.6214.713.221.31712.810.58.17.082*9.47*51.91.31.20.9970.842012345678910111213141

96、5161718192021222022202120202019201820172016201514 2023 KPMG Advisory(China)Limited,a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.A

97、ll rights reserved.Printed in Chinese Mainland.To the future:Opportunities and challengesIn this White Paper,we have addressed the likely impact on Hainans offshore duty free sector as Chinese nationals begin again to travel freely to international destinations.Our conclusion is clear,Hainan duty fr

98、ee will continue to grow both in the short and long term.As noted last year,the Hainan government and its duty free retailers have used the pandemic well.Outstanding tourism,investment and business promotion by fine organisations such as the Hainan Provincial Bureau of International Economic Develop

99、ment(Hainan IEDB),complemented by the top-class work of media houses such as Hainan Hinews Media Co and others,mean that the virtues of shopping duty free in Hainan are well-known throughout China.Last year we predicted more preferential policies to further boost the islands duty free industry and w

100、e were proven right,notably by the far-sighted March 2023 introduction of the enhanced Guaranteed pick-up and Buy and pick-up policies.Heavy investment in tourism infrastructure on the island is happening at pace from highways to hotels,retail to restaurant.The culture+business+tourism formula is su

101、rely the key to Hainans future success as Chinese consumers increasingly seeks experiential rather than simply transactional encounters.We believe therefore that in line with President Xis description of international tourism is an important“business card”for Hainan Free Trade Port,the offshore duty

102、 free sector has a golden future.15 2023 KPMG Advisory(China)Limited,a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights rese

103、rved.Printed in Chinese Mainland.02Evolvement of China consumers in the post-pandemic era16 2023 KPMG Advisory(China)Limited,a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a priv

104、ate English company limited by guarantee.All rights reserved.Printed in Chinese Mainland.Currently,Chinas high-end product market is impacted by economic growth,the COVID-19 pandemic,sustainability,and technological advancements and so on.The core trends currently impacting Chinas high-end goods spe

105、ndingsSlowing economic growth and stimulation policies01The impact of the COVID-19 pandemic02Moving towards sustainable rates after decades of exponential growth“Dual circulation”economy policy encourages exportsLocal duty free sales come to rescue during the pandemic Drop in consumer confident leve

106、ls during the spread of Omicron variant in 2022Growing consumer demand for high quality,uniqueness and speciality products and servicesConsumers“live in the moment”,likelihood for more impromptu purchases Increased awareness of sustainability03Digital technology has underpinned Chinas rise04Policy p

107、ush from the government to encourage sustainability/“green”topicsRise of second-hand clothing market in China Increasing demand for sustainable travelIncreasing adoption of internet and social media Blurring boundaries between online and offline,leading to demand for omni-channel Rising usage of adv

108、anced technology to facilitate purchases e.g.VR/AR 17 2023 KPMG Advisory(China)Limited,a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarant

109、ee.All rights reserved.Printed in Chinese Mainland.Based on recent surveys and outbound travel patterns since the lift of travel bans,in 2023,Chinese tourists are most interested in similar destinations as those in 2019(pre pandemic)1Mainland travellers made up 80%of total number of inbound tourists

110、 in Hong Kong&Macau,40%of South Korea and Japan respectively2Number of Mainland tourists arriving at Hong Kong&Macau accounted for 46%of total departures in China3Benefiting from unique tourism resources and the rapid development of duty free market since 2020,Hainan is estimated to be a hot travel

111、destination even after the border is open Milan,Hainan,and Hong Kong are Chinese luxury consumers most preferred destinations for traveling and purchasing luxury items(in no particular order).Where to buy Hainan,Hong Kong and Macau remain popular travel destinations for Chinese travelers pre&post pa

112、ndemicNote:(1)2019 data is leveraged since recent surveys found that the travel destinations in 2023 is highly similar to those in 2019;(2)(2)Gen-MZ refers to a pairing of two population groups:Millennials(born 1981-1995)and Generation Z(born 1996-2005)1,2,3 Source:Euromonitor,MasterCard and ctrip C

113、hina Cross border Travel Consumption Report 2019,Official government statistics,Tourmis.info,World Bank,KPMG analysisPreferred travel destination by luxury consumers(displayed by frequency)Source:Luxury Redefined Building trust with Chinese consumers through authenticity and integrity,KPMG China,DLG

114、,2023 Feb,KPMG analysis MilanHainanHong KongSydneyMacauChengduTokyoNew YorkSingaporeSeoulLondonParis18 2023 KPMG Advisory(China)Limited,a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Lim

115、ited,a private English company limited by guarantee.All rights reserved.Printed in Chinese Mainland.According to TMIs 2021 survey on luxury consumers,42%of Chinas luxury spending comes from the high-end consumer group whose net assets exceed 10 million yuan,accounting for only 0.3%of Chinas total po

116、pulation.The macro environment and the pandemic have had a minor impact on the purchasing behaviour of high-end consumers buying luxury items.Who to buy the major driving force of high-end products consumption is high-end shoppers habit of luxury items purchaseBased on above data,we can see that,hig

117、h-end shoppers have strong confidence on future economic environment,and their spending level will not be affected in short term.A large amount of luxury product consumption can retain domestically if local shopping malls can meet high-end shoppers expectations：Luxury product consumption will encoun

118、ter a certain amount of outflow when the border reopensHowever,daily luxury consumption of high-end shopper may not be greatly affectedHigh-end shoppers hope local malls can satisfy their needs on considerate service and quick access to new productsReasons for domestic luxury consumptionSpending lev

119、elOverall,total consumption of luxury is not affected by macro environment.Shopping channelDaigou and travel retail overseas decreaseOnline channel slightly increasesDomestic shopping mall is still importantShopping behaviourMore cautious in buying luxury products,consider whether the products are r

120、eally in need before purchaseProduct categoryPrefer value-preserving productsPrefer classic onesImpacts from COVID-19Daily consumption is the main scenarioTravel retail only accounts for small amount of luxury consumptionUrgency to get luxury productsLuxury products are exclusive,some are limited ed

121、itions that high-end shoppers want to buy immediately010203Smaller price gap compared with overseas marketThe government has issued tax reduction policies on luxury productsThe development of Hainan duty-free market has also captured more consumption returnsSource:consumer research,KPMG analysis19 2

122、023 KPMG Advisory(China)Limited,a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.Printed in Chinese Mainland.The

123、travel restrictions and global supply chain disruptions during the pandemic have hindered Chinese consumers from purchasing high-end products abroad or through daigou channels.The purchasing behaviour of Chinas high-end shoppers has been affected and changed by the three-year-long pandemic.Chinas hi

124、gh-end shoppers become more favourable with online and offline omni channel integration for purchasing.China is expected to become the worlds largest consumer market for personal luxury items in the future.In the current macroenvironment,Hainan is expected to cater to the trend of high-end product c

125、onsumption returning to the domestic market,continuously releasing growth potential,and becoming the preferred destination for domestic high-end product spending.High-end shoppers are confident of future economic environment and their short-term consumption level remains unaffectedSource:consumer re

126、search,KPMG analysisHigh-end customers have positive attitude to economic environment after Covid restrictions liftedShopping desire increases as high-end customers income level increasesDomestical shopping malls provide convenience and can fulfil daily luxury consumption demandDuring the epidemic,h

127、igh-end shopping malls built a certain connection with consumers through VIP program and close serviceLuxury consumption outflow is mainly caused by travel retailShoppers tend to buy luxury products in overseas mainly because of price advantage and abundant product portfolios or stocksHow will your

128、luxury spending level change in next 2-3 yrs?N=38,single choiceHow will your luxury shopping channel change after the border reopens?How much will your luxury consumption outflow after the border reopens?5%42%8%0%45%Significantly increase(50%or more)Increase(49%or less)Significantly decrease(50%or m

129、ore)No changesDecrease(49%or less)16%76%8%0%Domestically,mainly in offline mallsDomestically,mainly onlineDomestically,online and offline half eachMainly abroad3%8%50%37%3%Less than 20%21%-40%41%-60%61%-80%More than 80%Future luxury consumption changeLuxury consumption channelPercentage of luxury co

130、nsumption outflowN=38,single choiceN=38,single choiceChinas high-end shoppers become more favourable with online and offline omni channel integration for purchasing20 2023 KPMG Advisory(China)Limited,a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of

131、 independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.Printed in Chinese Mainland.According to the KPMG China and DLC report Luxury Redefined published in February 2023,we categorised Chinese consumers into 5 clusters.

132、The characteristics and demographics of each Chinese consumer group are as follows：We categorised Chinese consumers into 5 clusters to explain their characteristics and behaviours，and identification of core and emerging luxury consumer personasThe clusters are not rigid,Chinese consumers move seamle

133、ssly from one cluster to another。In China,consumers are multi-dimensional.This characteristic has amplified in previous years,due to:Rapid development of global perspective Easy accessibility information thanks to the advancement of the internet Characteristic15633430918%812232%38%9%2%Understanding

134、Chinese luxury consumers:The five clustersPopulation%of population/total population(millions)Cluster 1:GoingglobalValue brand name and originLow understanding of brand nuanceMost prevalent among 45+years oldConcentrated among Tier 2 citiesCluster 2:Look at meCluster 3:Fitting inCluster 4:Quality fir

135、stCluster 5:Striving for the greater goodValue conspicuous luxury clothing and accessoriesBuy luxury products to display statusMost prevalent among 25-34 years oldValue quality lifeShare experiences on social mediaMost prevalent among 25-34 years oldValue sophisticationAppreciate brand heritage,fabr

136、ic and manufacturingMost prevalent among 45+years oldValue the greater goodChoose companies that are sustaianbleMost prevalent among 18-24 years oldConcentrated among Tier 2 citiesConcentrated among Tier 1 cities and Hong KongConcentrated among Tier 1 citiesConcentrated among Tier 1 citiesSource:Lux

137、ury Redefined,KPMG China,DLG,2023 Feb,KPMG analysis Source:Luxury Redefined,KPMG China,DLG,2023 Feb,KPMG analysis 21 2023 KPMG Advisory(China)Limited,a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG Int

138、ernational Limited,a private English company limited by guarantee.All rights reserved.Printed in Chinese Mainland.We identified five core luxury consumer“personas”in China and two emerging personas with growing significance as the market matures：Luxury Newcomers：Luxury newcomers are those who recogn

139、ise and favour foreign brands，They dont spend much time researching products and tend to buy well-known brands that are easy to recognize.They are easily influenced by brand advertising,reputation or spokesperson,and are more likely to accept promotions,discounts,direct sales from manufacturers,and

140、duty-free shops.Status Reflectors：Status Reflectors value products and services with a good reputation and high brand visibility to reflect and showcase their status and wealth.They are likely to be influenced by information on mainstream social media and in advertisements,such as product placements

141、 on TV shows and in video games.Community Approval Seekers：Community Approval Seekers see luxury as a form of social currency that can give a sense of belonging.They are also keen trend watchers.To gain recognition from the community,luxury purchases are influenced by societal and peer pressure,and

142、there is a heavy reliance on information from social media and key opinion leaders(KOLs).Luxury Connoisseurs：Luxury Connoisseurs value high-quality goods that can demonstrate their unique personality,and are prepared to pay a premium to get what they want.Consumers in this group have a relatively hi

143、gher knowledge of luxury brands and an understanding of their differences.They are more likely to be influenced by social media,direct engagement from brands(e.g.newsletters,text messages,sales staff engagement),communities and their peers rather than advertisements.This persona has a higher accepta

144、nce of niche brands,while trends and influencers primarily dictate their purchasing decisions.New Luxury Pioneers:New Luxury Pioneers are consumers who are attracted to new values and concepts,they are more open to brands that promote new ideas and advanced designs that make a contribution to societ

145、y.Cultural Resonators(two emerging personas):Cultural Resonators are a young cohort of shoppers whose purchasing habits are driven by emotional connections to Chinese culture.Cultural Resonators see purchasing local brands as a sign of being an insider and one that allows them to represent their her

146、itage.Luxury Investors(two emerging personas):Luxury investors treating luxury products as an alternative investment vehicle.The products they buy are in high demand and are often limited editions or member-exclusive pieces.01020304050607Cluster 2:Look at meCluster 3:Fitting inCluster 4:Quality firs

147、tCluster 5:Striving for the greater goodCluster 1:Going globalLuxury NewcomersStatus ReflectorsCommunity Approval SeekersLuxury ConnoisseursLuxury Investors“New Luxury”PioneersCultural ResonatorsPersona distribution by consumer mindset clusterSource:Luxury Redefined,KPMG China,DLG,2023 Feb,KPMG anal

148、ysis 22 2023 KPMG Advisory(China)Limited,a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.Printed in Chinese Main

149、land.Source:Luxury Redefined,KPMG China,DLG,2023 Feb,KPMG analysis 23 2023 KPMG Advisory(China)Limited,a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company li

150、mited by guarantee.All rights reserved.Printed in Chinese Mainland.As the Chinese market matures,the importance of cultural resonators and luxury items investors is expected to increase.However,consumer behaviour is constantly changing,and they may exhibit characteristics of multiple consumer profil

151、es at the same time.According to a survey of seven consumer profiles,Milan,Hainan,and Hong Kong are their preferred destinations for traveling and purchasing luxury items(in no particular order）.Source:Luxury Redefined,KPMG China,DLG,2023 Feb,KPMG analysis 24 2023 KPMG Advisory(China)Limited,a limit

152、ed liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.Printed in Chinese Mainland.Based on the survey analysis,purchasing pow

153、er is a critical factor in the ability to buy luxury items,which drives the development of consumer mentality,and affects the future development of Chinese consumers.When consumers are no longer limited by their purchasing power,they have a certain degree of freedom to expand their purchasing scope

154、from low-level needs to high-level pursuits.Using GDP forecasts,we can assess the consumption patterns of Chinese consumers and estimate how they will change in the future according to the trends observed in other countries.According to the KPMG research report Luxury Redefined published in February

155、 2023，Chinese consumers generally are in cluster 2(Look at me)and 3(Fitting in),while consumers attitudes in most Tier 1 cities are in the fourth cluster(Quality first)or at least approaching it(Figure 15).Most consumers in Tier 2 cities fit into the second and third clusters,with increased income a

156、nd economic development allowing for greater purchasing power and thus a growing appetite for luxury items.Chinas GDP per capita(adjusted by purchasing power parity)is currently one-third of that of the United States(Figure 16).Yet,if broken down by city class,Chinas GDP per capita for Tier 1 cities

157、 is lower than the United States by just 30 percent,and it is ahead of developed countries such as Japan and South Korea.Through forecasts based purely on past economic performance,the GDP of Tier 1 cities could catch up with the USs current level in 2030,implying that most residents in these cities

158、 will have a consumer mindset in clusters 4 and 5 by 2030.However,some external factors are also driving a change in consumer mindsets,such as relevant policies on ESG and brands initiatives around consumer education.Some of these top-down actions are pushing consumers to think and act differently t

159、han they would have without this influence,leading to higher awareness and different purchasing behaviours.This will shorten the required time for consumers to transition from the status to the more advanced clusters 4 and 5(Striving for the greater good).Therefore,it is thought that the mentality o

160、f consumers in Tier 1 cities in China may only be about three to five years behind the consumer mindsets seen in the US market,while the overall Chinese market could be about five to eight years behind.We estimate that Chinese consumers will gradually evolve and dominate in relatively mature consume

161、r clusters by 203015633430981229%34%17%37%2%962303461706511%25%38%19%7%471122163162245%25%35%12%24%20222025Stage 1:Foreign is goodStage 2:Showing off social statusStage 3:Community&BelongingStage 4:Pursuing Quality LifeStage 5:Purpose&Value-drivenPopulationmn/%to total population2030Source:Luxury Re

162、defined,KPMG China,DLG,2023 Feb,KPMG analysis 25 2023 KPMG Advisory(China)Limited,a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.Al

163、l rights reserved.Printed in Chinese Mainland.Leading socially responsibility actions consumers want to see from retailers.Buy from whomChinese consumers are expecting retailors with share more social responsibilityLeading socially responsibility actions consumers want to see from retailersPercentag

164、e of respondents who believe retailers should take the following actionsSource:Retail Recharged:Engaging consumers with technology,purpose and trust-2022 Survey.KPMG China,GS1 Hong Kong,HSBC,KPMG analysis.In summary,all operators in the Hainan travel retail market,whether they are duty-free operator

165、s or conventional retailers,should focus on the consumer profiles of Chinese consumers and the possible changes in their purchasing behaviours and habits in the future to prepare for the development of a more active and diversified Hainan travel retail market after seal-off.26 2023 KPMG Advisory(Chi

166、na)Limited,a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.Printed in Chinese Mainland.032023 is the ideal time

167、when we set the course for victory for Hainan!27 2023 KPMG Advisory(China)Limited,a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.Al

168、l rights reserved.Printed in Chinese Mainland.As mentioned,with the continuous support and investment from the government,investors remain optimistic about Hainans travel retail market.We believe that offshore duty-free industry can be considered as Hainans gilded signboard,will continue to achieve

169、more impressive results in the future.Hainan plays a key role in the global travel retail marketBreakdown of worldwide travel retail market(1)(%,2022-2028)Note:(1)Assumed constant growth rate from 2026-2028;assumed Hainans share of China DF to remain constant,taking up 79-80%of China market Source:B

170、 Travel Confidence Index Report 2022,HKEX,KPMG Hainan Travel Retail Whitepaper,KPMG market model,Statista,T,KPMG analysis1995320262%12%136202283%4%82%1654%21%14%202720244%17%202578%5%76%5%19%80%6%202813%8574%24116%202386%113+29%Rest of worldCN onshoreHainanCAGR26%51%41%28 2023 KPMG Advisory(China)Li

171、mited,a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.Printed in Chinese Mainland.With the continuous investment

172、 in Hainan market,consumers perception of Hainan market are constantly evolving and becoming more betterConsumer purchasing concepts are constantly evolving,and consumer behaviour is also constantly upgrading,from overseas Shopping to Hainan Shopping.62%relatively certain/very certainTourism in Hain

173、anQ:Even if outbound tourism resumes,still plans to return to Hainan to shoppingOverseas Shopping to Hainan ShoppingThe pandemic has accelerated the reversal of overseas shopping trends back to domestic tourismDriven by the new policies,brands,products categories,#of visitors and consumption has sho

174、wn increasing trends in Hainan20192025E65.0%15.0%20.0%OthersLuxury goodsPerfumes&Cosmetics50.0%40.0%10.0%Source:UBS,GUOSEN SECURITIES,KPMG analysisConsumer perception evolutionChange in Hainan DF sales mixConsumption upgradeThe removal of single-item DF allowance cap(RMB 8,000),and the increased per

175、-visit purchase quantity limit drives the change of tourists DF shopping behaviourDur to rising incomes,Chinese people have become more interested in buying high-end and luxury products29 2023 KPMG Advisory(China)Limited,a limited liability company in Chinese Mainland and a member firm of the KPMG g

176、lobal organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.Printed in Chinese Mainland.T ax incentives and favourable policies will attract more brands to start carrying out a Hainan long-term strategy

177、Set up Hainan trading entity and bonded warehouse allowing;Import duty exempted starting from seal off Streamlines indirect tax into Sales Tax:ONLY B2C is levied with single-digit tax rate Take advantage of the seal-off giving greater margin and more control on pricingKey objectivesHow we will achie

178、ve itLower tax burden Hainan entity will enjoy 15%CIT due to the substance of our business;Before seal-off,15%Corporate Income Tax for encouraged industries with business substance From the year of seal-off to 2035,15%Corporate Income Tax applies to ALL sectors with business substance(except those o

179、n Negative List)Attract more talent through lower tax Team members will enjoy reduced individual tax costs in Hainan;Before 2025,15%cap for Individual income Tax Before 2035,it is levied at 3%,10%,15%for individuals residing in Hainan over 183 days per annumMarket image in Chinese consumer With the

180、liberalisation of investment policy and more investment of foreign capitals,Chinese consumers increasingly believe that Hainan FTP is High-end international tourism&shopping centreHainan FTP 2010-2020:Hainan Duty Free Industry Development-Golden Decade“2020-2030:Offshore duty-free+island duty free “

181、Dual drive”New Shopping HeavenTourist Paradise“Chinas Hawaii”Wellness Paradise Chinas second largest island with many bays and 20+high-end hotels Haihua Island-the worlds largest flower-shaped artificial tourist island Boao Lecheng Medical Tourism Pilot Area will be built with 11 key parks,vigorousl

182、y introduce medical and health resources and enterprises30 2023 KPMG Advisory(China)Limited,a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by gu

183、arantee.All rights reserved.Printed in Chinese Mainland.After seal-off,the streamlined tax policy may narrow the gap between conventional retailers and duty-free operators,allowing brands to have the opportunity to sell through conventional channels at a more comparable effective tax rate(with equal

184、 profits).Before and after seal-off,we expect the major tax effects on conventional retailers and duty-free operators to be as shown in the following figure：Indirect tax treatment for wholesale and retail business in Hainan The island seal-off will be the biggest driver of change towards Hainans fut

185、ure as a leading retail destinationVAT and Consumption Tax to be simplified and streamlined into Sales Tax.According to the top-level design concept of Sales tax,it would be levied in the final B2C stage,meaning the prior B2B flows free of turnover tax.This could be a landmark driver of wholesale an

186、d retail business for those entering Hainan.Sales Tax Scheme in Hainan after Seal-offEnterprise in HainanEnterprise in HainanIndividual in HainanGoods or serviceGoods or serviceB2B,no Sales TaxB2CSales Tax will be leviedVisitors or local citizensSubject to tariff,import VAT and consumption taxNo tar

187、iff&sales taxB2C X%sales taxOverseas suppliersOverseas suppliersOverseas HainanNo tariff,import VAT and consumption taxPurchasing centre in Hainan CFTZ Before Seal-offDFOsGeneral storesNo sales tax4%Franchise Fee？Finance departmentPurchasing centre in/outside Hainan CFTZB2B:No sales taxDFOsGeneral s

188、toresVisitors or local citizens13%VATNo VAT4%Franchise Fee？Finance departmentAfter Seal-off31 2023 KPMG Advisory(China)Limited,a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a pr

189、ivate English company limited by guarantee.All rights reserved.Printed in Chinese Mainland.For brands,this would create the opportunity to operate direct owned or consignment style stores at prices much closer to the DFOs(the main distinguishing factor as to why they are not able to effectively do t

190、his today).This will appeal to those luxury and premium brands,and those that want to get greater control over their end customers and management of their brands in the market.Moreover,after seal-off,the traditional duty paid and duty free market will be integrated closely.Brands will need to furthe

191、r consider whether their operations will become a travel retail managed business or a local market managed business.This will likely be the most difficult question to face internally,however we have already seen the most strategic brands beginning to see how they can benefit from Hainan as an overal

192、l platform coordinated with effective resources which is not limited to being run by one unit or another.For DFOs the key question is how they can position themselves.Will they remain in what is mostly a wholesale style relationship with their brands,or will they seek alternate models to attract spe

193、cific brands and in turn drive greater traffic into their locations?Further,are their set-ups agile enough to work with these different models,and if not,what will they need to achieve this agility?All of this needs to be considered against the backdrop of the general investment going into Hainan fr

194、om other retailers and developers who now may offer alternate points of sale to traditional DFOs.This investment will bring greater overall benefit to the market and will offer more choice to brands and customers alike in their retail experience in Hainan.the traditional duty paid and duty free mark

195、et will be integrated.After seal-off,coordinated with effective resourcesBrands should consider how to benefit from Hainan as an overall platform 32 2023 KPMG Advisory(China)Limited,a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent membe

196、r firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.Printed in Chinese Mainland.2023 is the ideal time when we set the course for victory for Hainan!With the development of Hainans retail industry,we have not only seen a variety of du

197、ty-free retail models,but also witnessed the vigorous development of Hainans travel retail market.The future is full of opportunities,and 2023 will be an important start step for travel retail market.So,how can we seize this opportunity and achieve success in this retail market?Keep the dialogue ope

198、n and transparent01Establish the keystone for post-seal-off retail models02Agile Operations to connect Hainan with Mainland Market03Digitalization Empowers Hainan to Create Seamless Omnichannel Consumer Experience04The government timely and promptly communicates the policy direction that the market

199、is keen to know,managing market expectations for business models on the island after seal-off.Enterprises actively maintain good communication with key policy makers and professional intermediaries such as the central government,Hainan province and cities,and actively explore diversified business la

200、yout after seal-off.Provide consistent loyalty programs,points that can be used universally,and information sharing on consumer profiles for Chinese consumers visiting Hainan.Balance the pricing,sales,employees,shared supply chain,demand planning,data operations,organization structure settings,and c

201、ooperation mechanisms for the two markets of travel retail and mainland retail market.Proactively respond to the changes in consumer behaviour in the post-pandemic era,with consumers prioritizing online channels to obtain product information,while physical stores remain a key bridge to experience br

202、and culture and historical heritage.Leverage the advantage of Hainans data flow policies and deploy a fully integrated online and offline omni-channel experience to meet consumer demand.After seal-off,brands can establish their own duty-free stores without paying import duties.The cost of indirect t

203、ax has greatly decreased compared to that before seal-off,which puts brands on the same level playing field with duty-free operators.Enterprises can consider training local teams in advance,as well as the strengthening of local supply chain management,sales channels and pricing,government relations

204、and other related capabilities.33 2023 KPMG Advisory(China)Limited,a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserv

205、ed.Printed in Chinese Mainland.Final wordUltimately the seal off will help to further change Hainan for the better and its why we have invested our time and capabilities to understand the key factors to be successful in the market.KPMG are the leading advisors in Hainan,working with the largest numb

206、er of brands and DFOs on the most innovative business models.Contact us to help you:Analyse the current and near future development of Hainan policy and market Identify the applicability of policies to your business decisions in preparation for Hainan market entry Adopt an appropriate Hainan entry s

207、trategy,including holding structure,vehicle options(branches and companies)and business models(service,trading or mix function,etc.)Select the effective plan for implementation to achieve the strategy objectives Identify the appropriate growth strategy from POS type to location selection33 2023 KPMG

208、 Advisory(China)Limited,a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.Printed in Chinese Mainland.34 2023 KPMG

209、 Advisory(China)Limited,a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.Printed in Chinese Mainland.Martin Moodi

210、eFounder&ChairmanThe Moodie Davitt ReportP:+44 7710 435683W:E-mail:martinMoodieDavittR Nicole ZhangOffice Senior Partner,HainanKPMG ChinaP:+86(898)6525 3230W:E-mail:Raymond LamPartner,Head of Consumer MarketsKPMG ChinaP:+86(20)3813 8388W:E-mail:Willi SunPartner,Head of Advisory Services,Consumer Mar

211、ketsKPMG ChinaP:+86(21)2212 3740W:E-mail:Dermot DavittPresidentThe Moodie Davitt ReportP:+353 851379305W:E-mail:dermotMoodieDavittR Tina ChenAssociate Director,Advisory Services,Consumer MarketsKPMG ChinaP:+852 3927 5948W:E-mail:Eileen LinSenior Manager,Tax Service,HainanKPMG ChinaP:+86(898)6525 328

212、2W:E-mail:Contact us34 2023 KPMG Advisory(China)Limited,a limited liability company in Chinese Mainland and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.Printed

213、in Chinese M information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity.Although we endeavour to provide accurate and timely information,there can be no guarantee that such information is accurate as of the date it is r

214、eceived or that it will continue to be accurate in the future.No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.2023 KPMG Advisory(China)Limited,a limited liability company in Chinese Mainland and a member firm of

215、 the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.Printed in Chinese Mainland.The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.April 2023 launchFor a list of KPMG China offices,please scan the QR code or visit our website:https:/