Summary of the Conference Call on the Duty-Free Industry Industry Overview - The duty-free market in Japan is influenced by Sino-Japanese relations, with a significant contribution from Chinese tourists, accounting for 23.7% of the total consumption in Japan, which is projected to reach approximately 30 billion RMB in 2024 [1][3] - The new duty-free policies in Hainan and the effects of customs closure have led to a 27% year-on-year increase in duty-free sales in November, with average transaction values rising by 41% [1][4] Key Insights - The growth in Hainan's duty-free market is expected to come from two main customer groups: departing tourists and local residents, alongside the attraction of high-end industries due to low tax policies [1][4] - The number of inbound tourists to Hainan reached 1.26 million by the end of November, a 31% increase year-on-year, supported by a visa-free policy for 86 countries, which is expected to continue attracting foreign visitors [1][5] - If 10% of Hainan's resident population of approximately 10.48 million converts to duty-free purchases, it could create a market potential of over 10 billion RMB [1][6] Competitive Landscape - The recent re-tendering of port channels has introduced a model of minimum rent plus sales commission, encouraging the introduction of popular products such as domestic goods, smartphones, and drones [1][7] - China Duty Free Group (CDFG) has established a joint venture at Shanghai Pudong Airport, which may slightly reduce its operating area and profits by approximately 100-200 million RMB [1][8] - Despite increased competition, CDFG maintains a competitive advantage by securing key segments at major airports [1][7] Future Expectations - The duty-free market is expected to grow further in 2026, driven by the visa-free policy and an expansion in product categories and duty-free store sizes [2][10] - The indoor store segment has seen the opening of 8 new stores, with existing stores undergoing upgrades, indicating a positive trend in the retail environment [2][10] - The online channel, which saw significant growth during the pandemic, is expected to focus more on driving traffic to physical stores rather than competing directly with e-commerce platforms [12] Long-term Industry Outlook - The duty-free market in Hainan is anticipated to continue its upward trajectory due to seasonal tourism peaks and favorable policies aimed at boosting consumption [13] - Major players like China Duty Free Group are expected to see sales growth of 20-30% and profit growth of 10-15% in the coming year, despite increased competition [14] - Wangfujing and Zhuhai Gongbei Port Group are also positioned to benefit from the evolving market dynamics, with a focus on expanding their duty-free operations [14]

Core Viewpoint - The recent notification from multiple Chinese government departments aims to enhance the duty-free shop policy to boost consumer spending and promote the healthy development of duty-free retail business [1][2]. Group 1: Policy Enhancements - The notification specifies that starting from November 1, the duty-free shop policy will be improved to better support consumer spending [1]. - It encourages the sale of domestic products in both port exit duty-free shops and city duty-free shops, aiming to increase the presence of high-quality products that reflect Chinese traditional culture [1]. - There is a requirement for duty-free shops to allocate at least 25% of their sales area to domestic products [1]. Group 2: Product Offerings - The notification allows popular items such as mobile phones, micro-drones, and sports goods, which are in high demand and easy to carry, to be sold in duty-free shops [1]. - The government plans to accelerate the introduction of internationally popular products that are already listed abroad into domestic duty-free shops, thereby enriching the product categories available [1]. Group 3: Consumer Experience - The development of the duty-free industry is expected to enhance the shopping experience for both domestic and international consumers, unlocking the potential of China's consumer market [2]. - With the expansion of product offerings in duty-free shops, consumers will have more choices, which aligns with the goal of promoting consumption within China [2].