Shoppers visiting Hainan, known for its glitzy seaside hotels and sandy beaches, spent 30.94 billion yuan (4.11 billion euros) on duty-free goods in 2024, customs data released Thursday showed, down from 43.76 billion in 2023.
Their number dropped 15.9% to 5.683 million, the data showed, from 6.756 million in 2023.
"The depreciation of foreign currencies, such as the Japanese yen, combined with attractive travel policies such as visa-free entry into Malaysia, has led many Chinese consumers to seek lower prices abroad," said Kenneth Chow, consultant at Oliver Wyman.
While retail spending in Hainan is not crucial to the Chinese economy, its decline is a blow to foreign luxury brands.
The latter had banked on a post-pandemic boom that tripled duty-free sales between 2019 and 2023, thanks in particular to a 2020 increase in purchase limits in Hainan's 12 duty-free shopping malls.
Major global beauty players such as L'Oréal and Estee Lauder also have exposure in Hainan, where beauty products accounted for over 40% of duty-free sales in 2023.
"A decline in consumer confidence has significantly affected Chinese customers' willingness to spend on luxury and discretionary items," added Kenneth Chow.
"This is particularly true for prestige beauty products, which have seen considerable declines," the consultant believes.
On the Paris Bourse, luxury giant Kering was down 2.9% at around 09:40 GMT, among the biggest decliners on the CAC 40 (-0.6%). LVMH was down 1.4%, Hermès was down 1.08% and L'Oréal was down 0.11%.
The decline in sales in Hainan last year also bodes ill for plans to transform the entire island, which is the size of Belgium, into a duty-free commercial zone by 2025.
This expansion would enable brands to run their own duty-free stores, rather than relying on partnerships with domestic players such as China Duty Free Group.
It is also intended to draw Chinese consumers away from competing foreign duty-free centers such as Japan, Singapore and South Korea, helping to boost consumption in southern China.
(Written by Ryan Woo and Casey Hall; Florence Loève, edited by Blandine Hénault)