context: Due to tariff and non-tariff barriers, import luxury goods are priced differently in duty-free shops, regular shops and cross-border e-commerce. Before COVID-19 hit, many consumers used daigou or chose to travel overseas for purchases due to better prices and counterfeit concerns.
Duty-free operators are transitioning towards CBEC (cross-border e-commerce) as traffic in international airports remains grim. These online 'duty-free' shops are in fact not duty-free: shoppers do not need physical border-crossing, while operators pay VAT and consumption taxes instead of expensive airport offline rents.
Whether online 'duty-free' shops will cause shocks to existing CBEC operators remains to be seen, but Tmall and Kaola's manager says that CBEC still holds advantages in food, maternity and health supplements due to higher SKUs (stock-keeping units).
Meanwhile, cross-border e-commerce platforms are seeking duty-free products to sell. Hainan Airline Duty-Free, for instance, has become the supplier for Kaola, recently acquired by Alibaba.
These new business models create opportunities for mixing duty-free and non-duty-free goods against the interests of brand owners. But they are more willing to tolerate this as global sales decline.
Non-duty-free offline shops suffered most this year. Their sales of cosmetics have been down nearly 30 percent since July 2020, due to the expanded duty-free shopping quota in Hainan, according to industry insiders. To compete with duty-free shops, which are undergoing limited expansion, non-duty-free shops will likely lower prices through sales events.
Reducing import duty could effectively stimulate consumption. Due to the variety of duty-evading strategies, import duty revenue from luxury goods is already insignificant, writes Caixin.