Estée Lauder, L'Oréal suffer as China's duty-free spending falls
Fast forward to today, and the travel-retail sector in Hainan is in a 14-month slump with little sign of a turnaround. Duty-free sales dropped 10.8% over the first four months of 2025 compared with a year earlier, according to the latest data from the local customs agency. Both the number of shoppers and the number of products purchased declined by more than 25% so far this year.
Global heavyweights of the beauty industry are also feeling the impact of cratering travel retail in China. Until recently, the likes of Estée Lauder Cos., Shiseido Co., and L'Oréal counted on the lavish duty-free spending of Chinese travelers to drive their earnings growth. However, all three saw their Asia or China travel-retail sales shrink last year and in the first quarter of 2025.
The newfound frugality in duty-free spending follows a similar trajectory to the challenges global luxury brands face in the world's second-largest economy. Exuberant pandemic-era spending emboldened companies to make hefty investments, only to see demand rapidly shrink after consumers pulled back on spending in the aftermath of Covid.
L'Oréal plans to cut as many as 50% of its employees in its travel-retail division—mainly made up of Chinese staff—due to the poor performance of the duty-free sector in the country over the past two years, local media Caixin reported in April.
According to a statement from the company's travel-retail unit, the Paris-based beauty giant is undergoing a transformation to better respond to market shifts and evolving consumer needs. The Caixin report is not accurate; it was added.
The belt-tightening among Chinese shoppers also contributed to a 17.5% decline in first-quarter sales for Beiersdorf AG's luxury skincare brand La Prairie. It has responded by cutting its reliance on China.
'The cosmetics industry has seen the price advantage of travel retail eroded,' said Jacques Roizen, managing director of China consulting at Digital Luxury Group. 'Discounts by global beauty brands—frequent and deep—offered across online and offline platforms have narrowed the gap between the mainland and duty-free prices, diminishing the appeal of travel retail for beauty products.'
Highlighting how Hainan malls have lost their edge on pricing, Sam's Club, Walmart Inc.'s membership chain in China, sells Crème de la Mer facial cream at times for around 20% less than the duty-free outlets. Shoppers who purchase the item on Alibaba Group Holding Ltd.'s Tmall, China's dominant e-commerce platform, don't get a discount but will also receive a selection of free gifts.
The post-Covid resumption of travel to the likes of Japan and Southeast Asia has also eroded duty-free spending in Hainan. According to Roizen, affluent spenders, who supercharged Hainan's duty-free sales during the pandemic, are once again shopping abroad. Adding to the challenges is the rising popularity of domestic beauty brands offering high-quality products at competitive prices, he said.
Beijing's crackdown on resellers taking advantage of the island's duty-free shopping rules has also deflated the boom in Hainan. Known as 'daigou' in Chinese, some went so far as to use other people's duty-free shopping quotas to buy large quantities of goods and resell them in the rest of the Chinese mainland at a profit. A customs campaign against the practice in 2023 seized more than $83 million worth of duty-free goods bought in Hainan and resold elsewhere, according to a report by state-owned newswire China News Service.
The slump has also had an impact on Hainan's economy. At the height of the duty-free shopping frenzy in 2021, it grew 11.2% yearly, well above the nationwide growth rate of 8.6%. In 2024, Hainan's gross domestic product increased by 3.7%, lagging China's overall growth rate of 5%.
In 2022, the Hainan government targeted duty-free sales of 100 billion yuan. In its most recent work report for 2025, the target is just 52 billion yuan.
Unfulfilled hopes
After first introducing an annual duty-free shopping quota for Hainan of 5,000 yuan in 2011, the authorities drastically increased the allowance to 100,000 yuan in 2020. The government's support gave global beauty houses high hopes that Hainan would be a key growth market for years to come. Shiseido inaugurated six dazzling new stores for its premium brands in 2022. Pola Orbis Holdings Inc. opened its first duty-free store in Hainan in 2021.
Property developers are interested in the prospect of tourists willing to spend. Both Swire Properties Ltd. and LVMH Moët Hennessy Louis Vuitton SE have teamed up with local partners to build luxury retail developments in Sanya, scheduled to open next year.
Swire and LVMH didn't respond to Bloomberg's requests for comment.
'Hainan's travel retail hasn't shown a strong recovery yet,' said Serena Sang, a consumer analyst at SPDB International Holdings Ltd. 'Per capita spending during this year's May Day holiday continued to decline. We still need time to gauge consumer response as the island pushes for independent customs operations.'
Hainan resident Chen Yushan exemplifies the changing spending habits. Four years ago, the 30-year-old would regularly make the more-than-six-hour round trip from her home in Hainan to buy bagfuls of luxury cosmetics at the duty-free malls. Even though she lives close to the outlets, she has to take the arduous round trip as shoppers need to show proof of travel from the mainland to qualify for the duty-free quota. Now, she only makes the trip once or twice a year as the economy slows and the outlook becomes more uncertain.
'With an economy like this, I'm cutting back on spending on costly skincare products,' Chen said. 'I don't even buy luxury bags anymore. They're useless. Nowadays, I'd rather spend money on a good hotpot meal to treat myself.'
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Fashion Network
an hour ago
- Fashion Network
LVMH cognac makers spared from China's tariffs, but EU spirits sector remains under pressure
China has opted to exempt key cognac producers — including LVMH, Pernod Ricard and Rémy Cointreau — from newly announced tariffs of up to 35% on EU brandy, provided they agree to minimum pricing terms. The decision follows months of tension between the EU and China over anti-dumping investigations and comes as luxury groups continue to navigate shifting regulatory landscapes in global markets. The exemption applies only to companies that commit to selling above a set minimum price. For other producers — or those who breach the agreed price terms — China will apply duties of up to 34.9% for a period of five years, beginning Saturday, according to a statement from the Chinese government. SpiritsEUROPE, the trade body representing EU spirits producers, welcomed the partial relief for major cognac houses but warned that broader punitive measures remain in place. The organisation called for all restrictions to be lifted, noting that such tariffs risk further straining EU–China trade relations at a time when collaboration is essential. 'While we welcome the conclusion of price undertakings with certain companies, we urge that this option be extended to all compliant firms,' said SpiritsEUROPE Director General Hervé Dumesny. For LVMH, whose Moët Hennessy division includes high-end cognac labels such as Hennessy, China remains a critical growth market not only for wines and spirits, but also across fashion, jewellery and cosmetics. Any escalation in trade disputes — even outside of fashion — could influence wider sentiment and regulatory scrutiny toward European luxury brands operating in the region. The move echoes past trade tensions, such as the delisting of the e-commerce platform Wish in 2021, and reinforces how trade disputes across categories — including spirits — can have ripple effects on broader luxury exports. With China representing a key consumer base for European luxury houses, evolving tariff frameworks remain closely monitored across the sector, particularly as brands continue to adapt to shifting consumer behaviour and geopolitical uncertainty.
Fashion Network
an hour ago
- Fashion Network
Farm Rio extends Selfridges pop-up until late July
After its 'huge success' as a two-month Selfridges pop-up, Brazilian fashion brand Farm Rio is now extending its stay at the London fashion department store until the end of July. The 732 sq ft third floor space forms an immersive shop-in-shop experience, created in collaboration with the Brazil-based design studio Estúdio Campana, hailed as 'more than just a retail space'. As well as occupying two main entrance windows, there were also four additional secondary displays, all the areas that were transformed into art installations. Driven by a 'deep sense of purpose and shared values', it 'highlights the beauty of Brazilian heritage, commitment to nature, and the transformative power of art'. For Farm Rio's creative director, Kátia Barros, the venture 'has represent[ed] the realisation of a long-held dream: 'to have a tree inside one of the brand's stores.' For interior designer Humberto Campana, it 'honours… a commitment shared by Farm Rio that in 2024 celebrated 1.5 million trees planted across six Brazilian biomes through the '1,000 Trees a Day, Every Day' project.' The project wraps up the brand's journey in the UK, including the opening of its third and recent Farm Rio store in London at Carnaby Street and its first participation in the Chelsea Flower Show.
Fashion Network
an hour ago
- Fashion Network
Farm Rio extends Selfridges pop-up until late July
After its 'huge success' as a two-month Selfridges pop-up, Brazilian fashion brand Farm Rio is now extending its stay at the London fashion department store until the end of July. The 732 sq ft third floor space forms an immersive shop-in-shop experience, created in collaboration with the Brazil-based design studio Estúdio Campana, hailed as 'more than just a retail space'. As well as occupying two main entrance windows, there were also four additional secondary displays, all the areas that were transformed into art installations. Driven by a 'deep sense of purpose and shared values', it 'highlights the beauty of Brazilian heritage, commitment to nature, and the transformative power of art'. For Farm Rio's creative director, Kátia Barros, the venture 'has represent[ed] the realisation of a long-held dream: 'to have a tree inside one of the brand's stores.' For interior designer Humberto Campana, it 'honours… a commitment shared by Farm Rio that in 2024 celebrated 1.5 million trees planted across six Brazilian biomes through the '1,000 Trees a Day, Every Day' project.' The project wraps up the brand's journey in the UK, including the opening of its third and recent Farm Rio store in London at Carnaby Street and its first participation in the Chelsea Flower Show.
