It is our pleasure to present the second edition of our Hainan Travel Retail Whitepaper,  discussing the challenges and opportunities for Hainan as it plays a role in reshaping retail  business models in China. 

In light of ongoing travel restrictions due to the COVID-19 pandemic, many Chinese  travellers and consumers are focusing on Hainan as their attention has shifted to the  domestic market. Further, many market players are seeing Hainan as a sustainable travel  retail market thanks to its healthy growth. 10 offshore duty-free shops in Hainan made  outstanding contributions to annual sales exceeding CNY60 billion in 2021, achieving 84%  YOY growth. The first China International Consumer Products Expo May 2021 turned out  to be the largest high-end consumer products exhibitions in the Asia Pacific region. 

Hainan stands apart from other overseas travel retail destinations because of a series of  innovative institutional measures improving the business environment. In 2021, more and  more brands established their presence in Hainan. The ongoing pandemic has raised a  greater sense of urgency and enthusiasm for brands to look for alternative ways to  penetrate China’s domestic market, ensure supply chain resilience and improve consumer  experience through offerings in Hainan. 

With the planned seal-off coming in 2025, the current period is an exciting moment for  retail, with brands focusing intensively on the viability of their future business models,  especially the impacts to stakeholders along the supply chain due to the new Sales Tax  scheme. Brands are acutely aware of establishing proper Hainan structures and vehicles  that will empower their commercial capabilities and allow synergy with the Greater Bay  Area and the rest of mainland China. 

The pandemic has also made consumers more acutely aware of the need for  environmental sustainability and social responsibility, prompting many to increasingly  identify with brands that align with their values in these areas. This has prompted brands  to explore multiple channels for their ESG communication with consumers. 

Through this paper, KPMG and The Moodie Davitt Report present insights on the Hainan  travel retail market, with the goal of enabling duty free operators and brands to seize  opportunities in this rapidly evolving landscape.