China’s Luxury Bright Spot | BoF

China’s Luxury Bright Spot | BoF

Shoppers shop at a tax-free plaza in Haikou, South China’s Hainan Province. Getty Images

US luxury retailers, impatient for shoppers to start buying high-end goods again, are turning their gaze to the one place in the world where that’s happening: an island in the South China Sea.

Hainan Island, China’s smallest province, is one of the few tourist destinations on the planet that’s back in full swing as virus-related restrictions squeeze international travel. The revival has caught the attention of executives like Patrice Louvet, chief executive officer of Ralph Lauren.

“Hainan is a strategic priority for us,” Louvet said in an interview. “Every business is looking at it.” Ralph Lauren has three stores there and plans to open another in the second half of 2021.

Last July, Chinese authorities tripled the annual allowance for duty-free purchases in Hainan to 100,000 yuan (about $15,500) per person as the province attracted masses of domestic tourists unable to vacation elsewhere. In January, Hainan’s daily duty-free sales averaged 180 million yuan, up threefold from the year prior, according to the local government.

This surge has provided a valuable lifeline to luxury companies that have been deprived of tourism-related sales that normally drive a hefty chunk of sales.

‘On Fire’

“Hainan Island is on fire,” Capri Holdings Ltd. CEO John Idol said on a conference call with analysts. “That’s probably the only tourist location that we can talk about globally that is seeing a strong performance.”

Capri, the owner of the Michael Kors and Versace brands, doesn’t expect its overall travel retail business, which includes stores in airports and train stations, to recover until fiscal 2023.

Tapestry Inc. is also planning to expand in Hainan and sees it “as a growth vehicle in the future.” Its Coach brand has two stores there, along with a presence in two more duty-free shops. Sister label Stuart Weitzman operates an additional location.

“The amount of development there is outstanding,” Coach CEO Todd Kahn said in an interview. “So you’ll see a lot more stores across all of our brands in the upcoming year.”

In the case of cosmetics giant Estée Lauder Cos., sales last quarter at Asia’s tourist hubs more than offset losses across the rest of the world. The company is planning expansion in Hainan as well, Chief Financial Officer Tracey Travis said in an interview.

“We have been fortunate that Hainan has seen the kind of success that they’ve had,” she said.

By Kim Bhasin

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