Duty-free retail is finding new ways to grow

HAINAN, A TROPICAL island 450km (280 miles) south-west of Hong Kong, used to be a sleepy backwater populated by budget resorts catering to Chinese tourists unable to afford a trip to Hawaii. Today it draws travellers with considerably fatter wallets. Buying a Gucci gown or a Tiffany trinket in one of its giant, posh malls feels no different from shopping on Fifth Avenue in New York or Avenue Montaigne in Paris—until the tills are rung. Instead of walking out with their bling, visitors from mainland China pick up their items at the airport on their way home, or get them dispatched there directly. Under rules devised a decade ago, which mean that for duty purposes Hainan is treated as a separate zone from mainland China, they are exempt from certain taxes and duties. Savings can reach 30% as a result.Duty-free shopping conjures up images of crowded airport terminals. As covid-19 has emptied these of passengers around the world, the shops inside have suffered commensurately. After reaching $86bn in 2019, according to Generation Research, a consultancy, duty-free sales collapsed by two-thirds last year. Mauro Anastasi of Bain, another consultancy, forecasts that travel-retail sales will not reach those levels again in real terms before the second half of the decade. Intercontinental passengers and business travellers, the biggest spenders, are likely to take longest to return to the skies. Chinese tourists, by far the most prized by duty-free operators, are shunning countries with poor records of handling the pandemic.