China Duty Free’s luxury business facing challenges due to economic downturn

Amid China’s economic slowdown, the once vibrant Haikou International Duty Free City paints a grim picture, with deserted aisles and empty restaurants, signaling challenging times for China Duty Free (CDF), the state-owned retail behemoth. The latest financial report unveiled a troubling 16% revenue drop and a significant 36% profit decrease in 2024, accentuating the struggles faced by the luxury market in China.

The massive 280,000 square-meter Haikou mall, opened in 2022 by CDF with high hopes, is now a shadow of its former bustling self. Amid hopeful projections of exponential growth in the Chinese travel-retail market, the reality is starkly different now, with luxury sales plummeting and major luxury brands reporting disappointing figures.

China’s luxury market surge was initially bolstered by a government initiative to retain luxury spending within the country, but changing consumer habits and economic uncertainties have reshaped the scenario. During the COVID-19 pandemic, Hainan experienced a boom as a shopping paradise, but with the easing of pandemic restrictions, Chinese shoppers have reverted to international markets, further impacting CDF’s revenue stream.

The Chinese preference for local luxury goods over foreign brands and the shift towards experiential spending have posed challenges for CDF, which had positioned Hainan as a prime shopping destination. During the Lunar New Year festivities, a significant rise in spending on services and leisure activities was witnessed, diverting the focus from traditional luxury shopping experiences. This paradigm shift has further exacerbated the struggles faced by CDF.

The company’s stock plummeted by over 80% in the past two years, and sales figures have been surpassed by competitors like Dufry. With experts predicting a stagnation in luxury sales in China, the aspirations of China becoming the world’s largest luxury market anytime soon seem bleak. The future appears uncertain for China Duty Free as it grapples with a changing economic landscape and evolving consumer preferences, leaving its once vibrant luxury empire on shaky ground.