BEIJING (Reuters) – Tax-free spending fell 29.3% last year in China’s island province of Hainan, where global luxury players from LVMH to Kering have set up shop, as the economy weakens leading to a sharp drop in the number of domestic visitors.

Shoppers visiting Hainan, known for its glitzy seaside hotels and sandy beaches, spent 30.94 billion yuan (4.11 billion euros) on duty-free goods in 2024, data from customs published Thursday, down from 43.76 billion in 2023.

Their number fell 15.9% to 5.683 million, the data showed, from 6.756 million in 2023.

“The depreciation of foreign currencies, such as the Japanese yen, combined with attractive travel policies like visa-free entry to Malaysia, has led many Chinese consumers to seek lower prices abroad,” said Kenneth Chow, consultant to the firm Oliver Wyman.

While retail spending in Hainan is not crucial to the Chinese economy, its decline is a blow to foreign luxury brands.

They had banked on a post-pandemic boom which had made it possible to triple tax-free sales between 2019 and 2023, thanks in particular to an increase in 2020 in purchasing limits in Hainan’s 12 duty-free shopping centers.

Major global beauty players, such as L’Oréal and Estee Lauder, are also on display in Hainan, where beauty products accounted for more than 40% of duty-free sales in 2023.

“A decline in consumer confidence has significantly affected Chinese customers’ willingness to spend on luxury and discretionary items,” added Kenneth Chow.

“This is particularly true for prestige beauty products, which have experienced considerable declines,” believes the consultant.

On the Paris Stock Exchange, luxury giant Kering fell 2.9% around 09:40 GMT, among the biggest declines in the CAC 40 (-0.6%). LVMH dropped 1.4%, Hermès lost 1.08% while L’Oréal gained 0.11%.

The decline in sales in Hainan last year also bodes ill for plans to transform the entire island, the size of Belgium, into a duty-free trading zone in 2025.

This expansion would allow brands to operate their own duty-free stores, rather than relying on partnerships with domestic players, such as China Duty Free Group.

It is also intended to attract Chinese consumers away from competing foreign duty-free centers such as Japan, Singapore and South Korea, which would help revive consumption in southern China.

(Written by Ryan Woo and Casey Hall; Florence Loève, edited by Blandine Hénault)

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