Alibaba’s logistics arm Cainiao started running daily freight flights between Singapore and China’s Hainan Island on Sunday to transport duty-free beauty products, as Covid-19 travel restrictions have trapped Chinese consumers’ booming demand for high-end purchases on the mainland.
Cainiao Smart Logistics Network plans to operate seven return flights per week between Singapore and Hainan, which also serves as a free trade port due to its relaxed tax policies. The company is also considering opening direct cargo routes between Hainan and other destinations including Japan, South Korea, Australia and New Zealand this year, said James Zhao, Cainiao’s general manager for global supply chains.
Cainiao’s move aims to satisfy burgeoning domestic demand for luxury goods as free-spending Chinese consumers are unable to travel to the fashion capitals of Europe for shopping during the pandemic, and they are increasingly spending their money at home and online.
According to the company, the imported goods will be able to arrive in Hainan from Singapore within three hours, ready for sale at duty-free shops within 12 hours after clearing customs and dispatched from the warehouse. The process normally took two or three days before these direct flights were launched.
To boost domestic consumption, the Chinese government last year tripled the value of duty free goods that consumers could buy annually in Hainan to 100,000 yuan ($1540) and removed a cap of 8,000 yuan ($1232) for a single item. It also expanded the number of duty-free product categories from 38 to 45. Three licenses were issued in a single year, which allowed new retail players to jump into the market and operate duty-free shops on the island, compared to just seven licenses that had been given since the 1980s. These stimulus efforts have turned the tropical vacationland into a shopping paradise. In 2020, sales at Hainan’s duty-free shops reached 32.7 billion yuan ($5 billion), an increase of 127% year-on-year.
Earlier this month, French luxury goods group LVMH reported sales of €13.96 billion ($16.91 billion) in the first quarter, up 30% from the same period in 2020, blowing past analysts’ estimates. Demand from Chinese consumers has rebounded, with LVMH’s sales in Asia, excluding Japan, jumping 86% higher in the first quarter year-on-year. Overall, LVMH’s revenue was up 32% compared with a year ago and 8% higher than in 2019, driven by demand in Asia and the US.
According to a report by consulting firm Bain & Company, the global luxury market shrunk by 23% in 2020, but the consumption of luxury goods in China rose by 48%. China’s share of the world’s luxury market has grown from 11% in 2019 to 20% in 2020.
The consultancy also predicted that China is on track to become the world’s biggest luxury market by 2025, and e-commerce channels like Alibaba’s Tmall will continue to lead online growth. China’s annual luxury online penetration increased to 23% in 2020 from 13% in 2019, according to the report.