Taking the Travel Out Of Duty Free

Bargain-hunting travelers have long fattened the profits of duty-free shops, but Covid-19 travel restrictions have hammered those perfume suffused emporiums.

China is shoring up the tax-free shopping industry by letting domestic tourists into stores

Except in one place: China’s Hainan Island, where even domestic visitors can shop duty-free. Last year the government eased restrictions on such purchases as more Chinese tourists unable to journey abroad flocked to the island, providing a lifeline for the global industry. Duty-free sales in China “have been extremely solid in the last 12 months,” says Jean-Marc Pontroué, chief executive officer of high-end watchmaker Panerai, which is adding two duty-free locations on Hainan this year. “We remain optimistic because the Chinese can hardly get out of China.”

China is now extending parts of that Hainan policy to the mainland, with duty-free shops in central Shanghai, Beijing, and about a dozen other cities. Those operations look pretty much like other upscale retail outlets—pricey skin creams, displays of hand-made wristwatches, sumptuous leather handbags—except that shoppers who can prove they’ve been overseas in recent months don’t have to pay levies as high as 30%.

The goal is to get wealthy Chinese to shift some spending back to China rather than on trips abroad, and it’s working. China’s share of the global luxury market—the goods typically sold at duty-free—almost doubled last year to 20%, according to consultants Bain & Co. “Even when international travel reopens, there will be an alternative for mainlanders,” says Bruno Lannes, a Bain senior partner in Shanghai.