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The Moodie Davitt Report:Breaking new ground in China's post-Arrivals duty free market
Author:The Moodie Davitt   Source   Date:Oct,10,2016   Browse:1520   
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Editor’s introduction:

As President of China National Service Corporation (CNSC), Robert Lee has big ambitions. Following the 8 August opening of a new Shanghai downtown duty free store, the company – China National Service Corporation for Chinese Personnel Working Abroad, to give it its full title – aims to invest heavily in China’s burgeoning Arrivals and post- Arrivals duty free sector.

The move is linked to Chinese government efforts to discourage travelling consumers from buying abroad, through a combination of enhanced Customs checks on arrival, and more duty free shopping opportunities for returning travellers.

Lee says he is optimistic about the Shanghai project, which features 3,300sq m of floor space at Yueda 889 Plaza over two floors, and which attracted thousands of shoppers on its first day. In the first three weeks of trading sales reached US$2.5 million; the full-year estimate is US$62 million. Categories on offer include watches & jewellery, beauty, confectionery, toys, gifts and special sections dedicated to Korean and Japanese items.

In this interview Lee says that CNSC will now strive to improve its service and offer at the Shanghai store, before expanding the post-Arrivals business model to the company’s 11 other shops in China.


1.Duty Free Expert/The Moodie Davitt Report: Can you please explain CNSCs business and its role in the Chinese duty free market?

Robert Lee (with input from CNSC Deputy General Manager Duty Free Business Department Jacky Yan):

The State Council approved the establishment of CNSC in 1983. It was authorised to open duty free shops in China’s major cities for customers’ convenience. The aim was to promote international exchange, attract outbound Chinese to bring back hard currency, and to purchase foreign- made home appliances in China.

CNSC was the first duty free company approved by the State Council, and one of only two nationwide duty free companies in China.

Between then and the late 1990s CNSC established 35 main shops and 34 affiliated shops, covering most provincial capitals and all municipalities in China. We provided duty free services to 5.5 million customers. During this period household appliances was the category most in demand in the CNSC system.

In this period most of the foreign electronics groups brought their production to China, and demand for imported home appliances dropped sharply. To confront the difficulties that lay ahead, CNSC explored how to restructure the product assortment to satisfy the new needs of customers. Today cosmetics, fashion, accessories, watches and jewellery are among the main product categories. The sales network later recovered [after a period of decline –Ed] from just one shop to 12 shops today.

To better perform its role in leading overseas consumption back to China,in 2014 CNSC submitted an application to Chinese Customs for more space in the Shanghai shop, and this was approved the same year. This is a landmark in a new development era for CNSC’s duty free business.


2.Who can buy at the Shanghai store, and how will you widen your target audience?

The qualifying customers are Chinese travellers aged over 16 years who are returning from an overseas trip. They can buy within 180 days. We will first target Shanghai local residents with overseas travel records, which number around 1.5 million. We will gradually expand the remit of this shop to the neighbouring provinces such as Jiangsu and Zhejiang, which will double the targeted number of customers.


3.How are you positioning the Shanghai duty free store to potential shoppers?

The duty free business is policy-driven: it must go along with the guidance of national policy. CNSC’s duty free business offers favourable treatment to returning Chinese nationals. We must provide services to customers at all levels – we are available not just for rich people. From that standpoint, we by no means position ourselves only as a luxury store, but rather make it a lifestyle element for white-collar workers and the middle-income class. The Shanghai downtown store is our new flagship, with concepts that we will copy in other cities.


4.What is the potential for the duty free downtown market in Chinas cities, and how does your company plan to take advantage?

In 2015 the number of overseas Chinese travellers reached 120 million, and their total overseas spending was US$215 billion. The consumption per capita is about US$1,800, and half of that is for shopping. This is exactly the potential of the downtown duty free market in China. The mission of CNSC is to lead Chinese travellers’ overseas consumption back to China. We intend to build up more duty free platforms with similar concepts to the new Shanghai downtown duty free store.

The convenient transportation, more comfortable environment, longer shopping time, greater product choices and reliable after-sales service will make CNSC’s downtown duty free stores more enticing places to shop for returning Chinese travellers.


5.CNSC Shanghai downtown duty free shop space by major category

Fragrances & cosmetics: 1,200sq m

Fashion: 420sq m

Watches: 280sq m

Food: 250sq m

Household goods: 200sq m


6.What are your ambitions for the business in the new Shanghai store in terms of annual sales and the consumer experience?

We anticipate annual sales of US$62 million after all the target brands enter the Shanghai downtown shop. To improve the consumer experience we will cooperate with our vendors to organise various events such as product trials, brand communications, make-up services, hair salon services, cooking demonstrations and more.


7.What are the most popular product categories so far?

The most popular categories are perfumes & cosmetics, food, and household products.


8.How many brands do you offer, and what are the key names in each category?

We have 100 international brands at present. These include P&C brands such as Bobbi Brown, Clarins, Clinique, Estée Lauder, Elizabeth Arden, Jurlique, La Mer, L’Occitane, MAC, Origins, Shiseido and Sisley. In fashion, watches and accessories we have Aigner, Bally, Coccinelle, Emporio Armani, Folli Follie, Michael Kors, Seiko, Swarovski, Swatch, Tissot, Toscow and more. Further brands  will join in the next three months. To meet the need for Japanese and Korean brands among young customers we have introduced brands like Anessa, Club Clio, Cosmeport, Jayjun Cosmetic, Guerisson, It’s Skin, Jill Stuart, Kose, Leaders, Obeeco, SNP, SU:M37, Whoo, Yungo and more. Their sales performance has exceeded our expectations, and most of these brands are out of stock already. It’s been a very successful start.


9.What other duty free developments does CNSC have planned?

After the operation of the Shanghai downtown duty free store settles down CNSC will start to build up downtown duty free stores with similar concepts in other cities such as Beijing, Dalian and Nanjing.

The Shanghai store template will be gradually copied in the other 11 cities where CNSC already has downtown duty free licences. CNSC is also participating in Arrivals duty free shop projects, and will try to enter this new duty free field. 


10.About Duty Free Expert

Duty Free Expert is a popular social media platform founded by experienced industry executive Jason Cao. The title, which works closely with The Moodie Davitt Report, is focused on the Chinese duty free market and offers information to retailers, brand owners and consumers.


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