Finance Associated Press, October 9th (Reporter Lu Tingting) The outlying island duty-free market is facing challenges. According to the latest data disclosed by Haikou Customs, Hainan's outlying island duty-free purchases during this year's National Day festival amounted to 0.785 billion yuan, with the average daily shopping amount per passenger lower than the same period last year.

Analyst Rao Linfeng from Minsheng Securities told reporters from Finance Associated Press that the overall performance of the outlying island duty-free market during the 'Golden Week' is somewhat under pressure, which is in line with the industry trends this year. The main reasons for the impact include customers pursuing cost-effectiveness, the rise of domestic brands squeezing the duty-free market share, and the diversion of outbound consumption.

In the fourth quarter, Hainan will usher in the traditional peak season for tourism, and the main operators of outlying island duty-free businesses are also seizing the peak season market through packages such as 'flight tickets + duty-free' vouchers and buy-to-get promotions. Whether it can further boost performance remains to be seen by the market.

From the performance data of the National Day holiday, overall it shows a declining trend. According to data released by Haikou Customs, from October 1st to 7th this year, Haikou Customs supervised a total duty-free shopping amount of 0.785 billion yuan in Hainan's outlying islands, with 1.102 million duty-free shopping passengers and an average consumption of 7,124 yuan per person. During the Mid-Autumn Festival and National Day in 2023 (a total of 8 days), Haikou Customs supervised a duty-free sales amount of 1.33 billion yuan, with 0.17 million duty-free shopping passengers.

In fact, the Hainan outlying island duty-free market has been under continuous pressure this year. According to statistics from Haikou Customs, the total sales of the Hainan outlying island duty-free market from January to July 2024 was 20.133 billion yuan, a year-on-year decrease of 30.34%.

Hainan's outlying island duty-free market has always been a key focus of China Tourism Group Duty Free Corporation (601888.SH), and the sluggish sales end has also affected its performance. Financial reports show that China Tourism Group Duty Free Corporation's revenue and net income both decreased in H1, with a mother net profit of 0.976 billion yuan in the second quarter, a year-on-year decrease of 37.64% and a quarter-on-quarter decrease of 57.7%.

It is understood that China Tourism Group Duty Free Corporation's main revenue in Hainan comes from duty-free shops within Sanya City. Finance Associated Press reporters reviewing the company's financial reports found that its peak sales in recent years were in 2021, mainly benefiting from the shift of consumption demand in cultural tourism, luxury goods, etc., domestically during the epidemic period, with a significant increase in Hainan's traffic flow driving duty-free consumption on outlying islands.

In the first half of this year, the sales of China Tourism Group Duty Free Corporation's Sanya downtown duty-free store decreased by 28.97% year-on-year, with a revenue of 11.986 billion yuan and a net income attributable to the parent of only 0.537 billion yuan; In H1 of 2021, the revenue and net income attributable to the parent of China Tourism Group's Sanya downtown duty-free store were 18.53 billion yuan and 2.558 billion yuan, respectively.

On the secondary market, according to Wind data, as of today's close, the company's stock price closed at 76.40 yuan per share, a drop of over 80% from the 2021 high point. In September this year, it once touched the yearly low of 53.52 yuan per share.

Analysts point out that based on the current overall economic situation and expectations of future income growth, there is a trend change in social consumer behavior. The preference for luxury and sophistication among the middle class is relatively weakened, making the path for pursuing value clearer. In addition, domestic brands are rising, to some extent, occupying the market share of foreign luxury brands introduced in Hainan offshore duty-free shops. With the opening up of outbound tourism and an increase in overseas visitors, the domestic duty-free market is under pressure from consumption diversion.

Data from Ctrip shows that during the National Day holiday, the average daily outbound travel orders on the platform exceeded 2019 levels, reaching a record high. Residents from fourth and fifth-tier cities have become a new growth point for outbound travel, with daily outbound travel orders during the National Day holiday increasing by 1 to 3 times respectively. Meanwhile, residents from first and second-tier cities are traveling farther and spending more. Among the top 20 destination countries for outbound travel, long-haul destinations such as the United Kingdom, the USA, and Australia account for 37% of their total spending.

For the Hainan offshore duty-free market, the fourth quarter is the peak season second only to the first quarter in the year, and market participants are gearing up for the winter and spring peak season. Stores like CDF Sanya International Duty-Free City are offering discounts on beauty and fashion items, watches, jewelry, general merchandise (duty-free home goods, beauty devices, etc.), and liquor products, with full payment rewards in points or instant discounts, with promotions running until the end of October.

Hainan Airlines Holding launched the Hainan 'Flight Ticket + Duty-Free' coupon activity, where passengers can purchase a 500 yuan Hainan route air ticket voucher package for only 1 yuan and receive a 500 yuan offshore duty-free shopping voucher. Financial Association reporters learned that the current completion rate has exceeded 70%, the activity is still ongoing, and the offshore duty-free shopping vouchers will continue to be distributed.

Analysts express that the future of the offshore duty-free market still requires further observation and may need a longer adjustment period. Expectations include policy catalysts, improved consumer expectations, and changes in product categories that better align with current consumption trends.

China Tourism Group stated that the company will further optimize its product structure, maintain a high proportion of high-margin products, strengthen customer acquisition and sales incentives, continuously explore and improve sales promotion management mechanisms, employ price elasticity models, optimize product pricing, and discount strategies.