In the evolution of China's domestic fashion retail industry, the 20th century was dominated by department stores. The 21st century saw a shift with the flourishing of shopping centers and e-commerce, along with the introduction of outlet malls in various major cities, competing for consumers' attention and share of wallet. Airport retail, though always stable, has been considered part of the travel retail industry due to its unique scenario and high entry barriers.
Fashion brands have long held mixed feelings about the domestic travel retail market. From 2019 to 2022, as major domestic airports initiated retail upgrades and invited high-end fashion brands to settle in, there were frequent announcements of international brands launching and upgrading airport stores. Yet, the brands' expectations for return on investment in airport retail — whether it's for brand image or genuine profitability — remains a topic they're reluctant to discuss openly.
Significant moves by industry leaders often indicate current and future trends. This can be seen in major tech companies' withdrawal from while in parallel heavy up investments in the metaverse and generative AI tools, international automobile companies investing in Chinese new energy automobile brands, and fashion brands acquiring quality fabric manufacturers.
Similarly, in 2023, post-COVID and with the swift recovery of global tourism, the actions of DFS, the world leading duty-free retailer in the Chinese market offer insights into the domestic travel retail market, especially for fashion categories.
In 2023, DFS has been making significant moves in the Chinese market:
Reviewing these activations, two indications become clear: As a globally renowned duty-free retailer, DFS's focus has been on duty-paid retailer operations, with a physical presence primarily at Chongqing Jiangbei International Airport. This duty-free travel retailer has earnestly begun its dual-engine-driven development strategy in the Chinese market, combining both "duty-free and duty-paid" retail strategies.
From the very beginning of formulating its business development strategy in China, DFS has determined a dual-engine driven frame. Given the policy limitations that existed in the domestic duty-free market, DFS decisively broke away from its path dependence in the short term and positioned itself in a broader travel retail business scale, attempting to carve out a new territory in the domestic market.
This is a challenging task that in September 2021, Nancy Liu was appointed as the President of DFS China – she is also the first president of DFS in the Chinese market.
With curiosity about "What business insights does the duty-free giant have in re-entering duty-paid retail?", ConCall had a conversation with Nancy Liu.
ConCall: As the starting point of DFS's duty-paid business, what are the impressive features of the Chongqing Airport store that make consumers amazed and DFS proud?
Nancy Liu: We hope to make the Chongqing Airport store a "business card". Besides those obvious features such as store size, decor, and comfort facilities, the most important one will be the "provide services and experiences that match consumers’ needs".
About 60% of travelers at Chongqing Airport are business travelers. Their shopping needs and habits differ significantly from the group tourists of duty-free retail. They don't have as high demand for traditional best-selling duty-free products like cosmetics and liquor. Instead of browsing, they prefer efficient and quick purchases, they are impulsive purchasers, not very price-sensitive, but have a strong interest in new and trending items, and so on.
Therefore, our store mainly features top international fashion brands, and the products within are always the latest for the season. All of these are to better meet the needs of business travelers.
Our performance since soft opening has also proven that our strategy and plans are correct.
ConCall: In over sixty years of development, both airport and city stores have played an important role for DFS. Why did you choose to start the duty-paid business from an airport store?
Nancy Liu: Domestic airport retail is already a massive market. There are now over 245 airports nationwide, which will exceed 270 in two years. By then, there will be 1.5 billion domestic travelers annually, and wise travel retailers should not miss this huge opportunity.
Moreover, the airport itself is a unique space. Those who come here have already passed the "travel" consumption threshold, making them a crowd with a strong economic background and willingness to spend. Additionally, the "boarding now" prompt can accelerate their decision-making, objectively enhancing store operation efficiency.
The Chongqing Airport, with its abundance of high-quality customers, is an excellent proving ground. Our current mission is to perfect this "business card", introduce the overseas experience accumulated over sixty years into China, and ensure consumers get the same, even better, products and experiences as in city stores.
ConCall: Will there be city stores in the future? Opening city stores means DFS will enter the competition in the retail market, which is already crowded with department stores, shopping malls, and outlets.
Nancy Liu: Before diligently doing our current tasks to the best of our ability, we won't think too much about expansion. So, the current plan might include more airports, but not the stores in city centers.
Furthermore, within the Chongqing market, some brands that have not yet opened in the city center have already been introduced by us to the airport first for consumers to have the experience of the brands. From the perspective of the brands' own development, we have become their excellent first stop into this new regional market.
ConCall: Can it be understood that DFS duty-paid retail business in China will focus on the airport and gradually expand the same model of the Chongqing Airport store?
Nancy Liu: Focusing on the airport is unquestionable, but as a travel retailer operating globally, "localization" in different regions and projects is essential. This is because we have a multifaceted mission. As a partner, DFS's presence is to help airports upgrade their business; as a merchant, DFS must provide consumers with the best service; as a "platform", we help brands achieve expansion and revenue goals.
Therefore, different airports, different types of consumers, and the different needs of brands at different stages will all be our considerations, prompting us to customize different store content for different locations.
ConCall: As an experienced consumer industry management expert, how do you see the development trend of high-end consumption in China?
Nancy Liu: The financial report data of LVMH Group has already shown that premium products and consumption are not really affected by economic downturns and may even perform better. This is because people always have the desire to pursue a better life.
However, for DFS it's all about providing good service and experiences. Is the product good enough? Is the consumer experience good enough? Is the service timely enough? With so many channels to choose from, why would they choose us? What makes us unique? Instead of worrying or speculating too much, it's better to do what we need to do well.
According to a release from Xinhua on September 15th, based on advance ticket pre-sales, it is estimated over 21 million passengers will fly during this year's National Day holiday. The "Mid-Autumn Festival + National Day" Golden Week has always been a great opportunity for the fashion retail industry to boost performance, and the clear demand for travel consumption already demonstrated by the public, sends a positive signal to the travel retail industry.
But optimistic signals never simply equal definite results. Opportunities in fierce competition also favor well-prepared merchants. DFS's duty-paid business and dual-engine driven strategy were planned before the pandemic ended, showing its confidence in expanding its business breadth and depth in China. The decision to start with the Chongqing Airport store also shows that DFS's strategic planning is backed by in-depth thinking and comprehensive preparation.
When ConCall asked, "How did the DFS Chongqing Airport boutique perform of the soft opening and the official opening?" Nancy Liu's answer was candid and practical: "As time has passed, with the return of tourists and the arrival of the latest-season products, we have seen results. Just this morning, there was a very high-quality jewelry order completed in Bulgari. We have every reason to be confident."
For DFS, the upcoming National Day Golden Week will be an important test of its Chongqing Airport store and its overall duty-paid retail business strategy. For the entire domestic travel retail industry in China, every step and result of DFS will be an important reference case—perhaps it will completely change brands' sophisticated attitude towards domestic market travel retail.