Behind The Soaring Shares Of Wangfujing And Bailian: The New Policy Of Duty-Free Shops In The City Is Looming

Recently, tax-free stocks have continued to soar, especially Wangfujing, Bailian and Kaiser Travel.

On July 9, Wangfujing fell slightly by 1.75% and the stock closed at 72.82 yuan. But in the previous eight trading days, Wangfujing has soared by 77%. Bailian shares rose even more sharply. In the past nine trading days, it has pulled six up limit boards, with the share price rising from 13.45 yuan to 26.37 yuan, up 96%. Kaiser Tourism also has eight direct limit up boards, with an increase of 114% in the past nine trading days.

Why is the increase so high? The 21st Century Business Herald learned in the interview that these three companies are not only expected to enjoy the tax-free dividend of Hainan Islands, but also have new tax-free dividends waiting to be distributed in Beijing and Shanghai. Li Xiumin, an analyst with China Merchants Securities, pointed out that the policy of duty-free stores in the city is expected to be adjusted in the second half of this year, and the amount and category may be relaxed. The shopping objects of outbound stores may be relaxed to Chinese people to drive the sales of duty-free goods. Li Xiumin estimated that the market size of duty-free stores in Beijing and Shanghai would reach 20 billion yuan and 30 billion yuan respectively in 2025.

Challenges for new entrants

On the evening of July 8, Wangfujing announced that it was planned to set up a wholly-owned subsidiary, Beijing Wangfujing Duty Free Products Business Co., Ltd., with a registered capital of 500 million yuan, to carry out duty free products business and other businesses. At the same time, the business scope of duty-free goods is proposed to be added according to the actual business needs.

"The establishment of a duty-free goods operating company in this investment will help the company enter the duty-free market, combine taxable business with duty-free business, and help the transformation and upgrading of existing retail business." A person from Wangfujing Investor Relations Department said in an interview with the 21st Century Economic Report on July 9.

However, the above-mentioned personnel from Wangfujing Investment and Customs Department also admitted that it still takes time from the establishment of the company to its operation. At present, the company is just in the process of building a tax-free team, and it is unlikely to achieve tax-free income within the year. A tax exemption expert who did not want to be named told the reporter that next year may not be able to generate tax exempt operating income. The 21st Century Business Herald learned from the controlling shareholder of Wangfujing Shoulv Group that at present Shoulv Group is engaged in internal recruitment and needs to set up a tax-free team to participate in tax-free goods management.

"Wangfujing still has a long way to go after the establishment of the duty-free company." Wang Meng, OTRO Oriental duty-free retail observation expert and CEO of "Jessica's Secret", told the 21st Century Economic Report that the duty-free industry originated in Europe and is a new industry in China, including managers, operators and buyers. At the same time, as a new tax-free enterprise, it needs to negotiate long authorization and purchase agreements with international brands, as well as docking with customs and airline systems, as well as signing negotiations at the airport pick-up counter. Each negotiation and docking will not be a short process.

However, it should be noted that Wangfujing has many years of experience in the operation of traditional shopping malls. Although it does not have a large number of tax-free talents, many years of experience in the operation of traditional shopping malls is also a major advantage of the company. Therefore, there is also a certain foundation for operating duty-free stores in the city.

In the same way, on July 7, it was announced that the controlling shareholder of Bailian Shares, which applied for duty-free goods business qualification, had the same advantages and disadvantages as Wangfujing, and both belonged to Beijing and Shanghai retail giants, but had no tax exemption experience.

According to the reporter, unlike the tax exemption license granted in the past, this round of tax exemption operators are expected to obtain full tax exemption licenses. They can not only operate duty-free shops on outlying islands in Hainan, but also operate duty-free shops in Beijing or Shanghai.

The duty-free market in the city is another duty-free blue ocean.

Recently, the research teams of China Merchants Securities and Tianfeng Securities have both taken the Korean duty-free market as the research object to explore the trend of China's domestic duty-free market.

It is understood that in 2019, the scale of South Korea's tax-free market reached 21.3 billion US dollars, with an average annual compound growth of 22% in the past 10 years, of which the consumption of South Korean citizens was 3.5 billion US dollars, with an average annual compound growth of 9% in the past 10 years, and the consumption of foreign tourists was 17.8 billion US dollars, with an average annual compound growth of 27% in the past 10 years. Overseas tourists constitute the main consumption power of South Korea's tax-free market.

The biggest feature of the duty-free market in South Korea is that city stores are the main duty-free channels in South Korea, accounting for more than 80% of sales. In 2013, the Korean government further liberalized the duty-free license, and the number of duty-free shops in the city expanded rapidly from 10 before 2012 to 27. At present, the duty-free stores in the city account for about 85% of the duty-free market in South Korea, and the corresponding market size is about $18 billion.

Compared with the airport duty-free stores, the duty-free stores in the city have larger display space and longer shopping time, leaving more decision-making time for consumers. From 2016 to 2020, the duty-free passenger price in the city of South Korea has increased from $400 to $1000, and the channel share of the duty-free stores in the city of South Korea has also increased to 84%, while the passenger price in the airport stores is only $135.

The scale of tax exemption in South Korea has improved the bargaining power of the channel, and the model of city store returns to consumers. There are two main factors for the price of Korean duty-free goods to reach the lowest level in the world. On the one hand, because the rent of the store model in the city is low, the duty-free operators can give more rebates to channels and consumers. On the other hand, because the duty-free wholesale model in South Korea makes the duty-free scale of South Korea huge. In 2018, two duty-free operators, Lotte and Silla, ranked second and third in the world, The bargaining power of duty-free goods is directly linked to the duty-free scale, so the Korean duty-free operators can get the lowest cost price in the world, so they have more advantages in pricing.

In the case of South Korea, the prospect of duty-free shops in China seems to be considerable. After all, a high proportion of sales of Korean duty-free stores come from Chinese consumers.

Beijing Shanghai duty-free new cake

Compared with South Korea, domestic duty-free shops are still in the initial stage. It is reported that there are three kinds of domestic stores in the city, namely, offshore duty-free stores, urban duty-free stores for returnees, and outbound duty-free stores. Among them, returnees have duty-free licenses for Chinese citizens who have (non Hong Kong and Macao) entry and exit records within 180 days, Chinese outbound service and Hong Kong China Travel Service. Outbound duty-free shops in the city are for outbound foreign passengers. At present, they are exempt from the license of Beijing, Shanghai, Qingdao, Dalian, Xiamen and other cities. However, except for the off island duty-free stores, the revenue of other duty-free stores in the city is not large.

Therefore, on March 13, 23 departments including the National Development and Reform Commission jointly issued the Implementation Opinions on Promoting Consumption Expansion and Quality Improvement and Accelerating the Formation of a Strong Domestic Market, which mentioned further improving the policy of duty-free industry, adhering to the equal emphasis on serving overseas people and our outbound residents, improving the policy of duty-free stores in the city, and building a number of duty-free stores in the city with Chinese characteristics, According to the improvement of residents' income level and consumption upgrading, timely study and adjust the tax-free quota and tax-free varieties.

This policy sends a strong signal to the outside world. Soon, Wangfujing was approved as a tax-free operation qualification in early June, and Bailian was also applying for the qualification. Other contents in the Implementation Opinions need to be further implemented. Many experts interviewed by the reporter in the tax exemption field believe that the possibility of introducing a new policy for duty-free stores in the city in the second half of the year is high.

Li Xiumin believes that the top-level design emphasizes the equal emphasis on serving overseas people and Chinese outbound residents. At present, the shopping objects of Korean stores in the city include domestic residents and foreign tourists, while China only includes foreign tourists. In fact, the main sales target of China Exemption is Chinese people. The government has also been actively guiding the return of overseas consumption, She thinks it is likely that the shopping objects of duty-free stores in the city will be extended to Chinese.

Moreover, the Opinions proposed to study and adjust the tax exemption limit in due time according to the income level and consumption upgrading. Wang Meng believes that the amount of inbound tax exemption has not changed for ten years. With the rising domestic per capita income and the growing demand for duty-free goods, the duty-free quota is expected to increase.

Li Xiumin believes that with the opening of the duty-free shop policy in the city, consumers will greatly enhance the convenience of purchasing duty-free goods, which is expected to have a certain substitution effect on the existing tax channels, driving the scale of the duty-free market to further increase.

According to the airport shopping conversion rate method and Ping's method, Li Xiumin estimates that the duty-free stores in Beijing will achieve a tax-free scale of 20 billion yuan in 2025, and the expected profit volume will be 4.6 billion yuan; Duty free shops in Shanghai will achieve a tax-free scale of 30 billion yuan in 2025, with an estimated profit volume of 6.7 billion yuan. Both the tax-free enterprises under the local SASAC and China Exemption Group hope to participate in the competition in the local market.