In Sanya Yalong Bay, Hainan, the unveiling of the DFS Yalong Bay project, the first seven-star luxury retail and leisure destination, is highly anticipated.
It’s noteworthy that this will be DFS’s largest project globally, the travel retail giant under the LVMH.
“I believe the focus on Hainan and the DFS Yalong Bay project comes not only from a corporate level but also signifies the broader international high-end brand industry’s attention and high expectations for Hainan’s development,” said Andrew Wu, President of LVMH Group Greater China, during the signing ceremony.
Once fully operational, the project will feature over 1,000 international brands, including the core brands of the LVMH Group, and will serve as a hub for flagship stores.
The LVMH Group has set the goal for this project to be among the top three largest commercial developments in Hainan.
What significance does the DFS Yalong Bay project hold for the luxury goods industry and for Hainan? What surprises will it bring us? Luxe.CO interviewed two key figures involved in the project—Nancy Liu and Li Zhong.
Photo left: Nancy Liu, President of DFS China. Photo right: Li Zhong, Chairman and President of Shenya Group.
Enhancing Sanya’s High-End Resort Experience
As one of China’s most popular tourist destinations, Sanya and Hainan attract an increasing number of global visitors, and the shopping environment here is gradually maturing.
Many visitors to Sanya and the “new Sanya people” who have moved here express a desire for a better holiday and living experience, such as more family-friendly indoor interactions, more exquisite dining experiences, more personalized spa services, and a more leisurely shopping atmosphere, among others.
Nancy Liu, President of DFS China, revealed a statistic: 30% of visitors to Hainan travel with their children.
For this reason, the DFS Yalong Bay project has specifically built the largest indoor children’s play center in Yalong Bay, allowing children to have fun and greatly satisfying the experience needs of family travel.
Additionally, relaxation and health are the most important emotional needs for contemporary travelers. Liu said, “Wellness is an important topic for visitors in Hainan, and wellbeing is also a major reason many people visit. We hope to contribute to society, not just in terms of consumption.”
“We find that consumers have high expectations for local dining services. They hope for improvements in this area, along with better experiences. If they stay here for three months, six months, or even nine months, they cannot just consume every day, so we are also planning to organize various cultural and healthy lifestyle activities.”
DFS Yalong Bay Children’s Playground Rendering
DFS Chairman and CEO Benjamin Vuchot once stated, “The DFS Yalong Bay project is a concentrated embodiment of the unique features we want to bring to Sanya, offering a unique experience. While there are many retail examples in Hainan now, I believe what we aim to do is truly personalize the experience and provide the most prestigious luxury services, including entertainment, dining, services, beauty spas, and more. To create more unforgettable surprises and happiness for visitors to Hainan.”
“Here, not only can one enjoy first-class shopping services provided by DFS, but also unique experiences, whether it’s the luxurious DFS Exclusive Club, accompanying fine dining, or simply sharing precious moments with family and children.”
According to data from the Hainan Provincial Department of Tourism, Culture, Radio, Television and Sports, in 2023, Hainan received 90 million domestic and international visitors (including 64 million overnight visitors and 26 million day visitors), a year-on-year increase of 49.9%, including 510,000 international overnight visitors, a year-on-year increase of 238.4%. Sanya received 25.71 million overnight visitors in 2023, nearly doubling compared to 2022, including 300,000 international visitors, a year-on-year increase of 159.1%.
“By 2030, the project is expected to attract 16-18 million visitors annually, with annual turnover reaching tens of billions,” said Liu and Li in an interview with Luxe.co.
DFS Yalong Bay Project Overall Rendering
Why Do LVMH Group and DFS, the “Originator of Duty-Free,” Favor Yalong Bay?
“Compared to customers at foreign travel destinations, those in Yalong Bay are completely different,” Liu told Luxe.co. “The former are limited by time, usually staying only two or three days, and rarely bring their families, opting more for trips with friends or companions. But in Yalong Bay, their stays are longer, and their spending is undoubtedly higher.”
Located in the northeastern corner of Sanya, Yalong Bay is renowned as “the best bay under heaven” and serves as a high-end tourist resort area in Hainan. It also includes vacation apartments and villas targeting mid-to-high-end consumers, attracting a crowd seeking quality life and vacation experiences.
The DFS Yalong Bay project is situated in the Yalong Bay National Tourism and Holiday Resort in Jiyang District, right at the gateway to the cluster of five-star hotels, making it the “heart” of Yalong Bay. Adjacent to beautiful beaches, clear waters, and abundant resort facilities, it is the prime choice for a retail leisure and entertainment destination.
In terms of accessibility, Yalong Bay is about a 40-minute drive from Sanya Phoenix International Airport, about 30 minutes from downtown, and 55 minutes from another popular tourist spot, Haitang Bay, which is quite convenient for visitors. Additionally, Yalong Bay accounts for 22% of Sanya’s boutique hotels, with over 12,000 rooms.
Liu revealed that the decision to focus on Yalong Bay was due to the high quality of its customers. “In Hainan, especially in Sanya, the clientele varies between different districts and bays. In Yalong Bay, the customer quality is very high. Some high-end families have been vacationing here for nearly 30 years. Their stays are also quite lengthy, some even up to six or nine months, and they often bring elderly family members and children along.”
Liu confirmed that the DFS Yalong Bay project will be a core component of DFS’s long-term expansion and investment strategy in the Chinese market and a focal point of intensive efforts over the next three years.
DFS started in Hong Kong in November 1960: founders Robert Miller and Charles Feeney established the world’s first DFS store at Hong Kong International Airport, which was also the world’s first duty-free shop. In 1968, DFS expanded beyond airports, opening the world’s first downtown duty-free store in Kowloon, Hong Kong, pioneering the concept of downtown duty-free stores.
Today, DFS has become the world’s largest downtown duty-free store operator and a leading luxury travel retailer, with retail outlets across the globe, including 22 in city centers and 15 at major international airports.
In 1996, LVMH Moët Hennessy Louis Vuitton, the world’s largest luxury goods group, acquired a majority stake in DFS, making it a sister company to famous luxury brands like Louis Vuitton, Dior, Fendi, and Givenchy.
In 2005, DFS officially entered the Chinese mainland market, securing a ten-year concession contract for duty-free retail business at Haikou Meilan International Airport. Since then, DFS has used Hainan as a base to expand its market in China. In 2011, DFS obtained a wholesaler qualification from Hainan Duty-Free (HNDF) and assisted with the duty-free business at Haikou Meilan International Airport. In 2013, DFS began duty-paid operations at Sanya Phoenix International Airport.
After more than 60 years of steady operations, DFS possesses strong high-end brand resources and extensive experience in travel retail services. These advantages also safeguard the DFS Yalong Bay project.
—Shenya Group and DFS, two enterprises deeply rooted in Hainan, have joined forces.
Li Zhong from Shenya Group mentioned that Shenya was one of the first Shanghai companies to participate in Hainan’s development and the first to develop tourist resorts in Yalong Bay. As early as 1988, when Hainan Province was officially established, Shenya Group had set up companies in Haikou and Sanya.
In fact, Shenya Group’s layout in Hainan also reflects the changes in the consumer market there. Li shared with Luxe.CO:
“We first set up five-star hotels in Yalong Bay, then developed tourism and vacation properties there, attracting a global high-end consumer base. At that time, owning a property in Yalong Bay was considered a personal asset.”
Li also revealed that when he was involved in commercial real estate, local government and the public were skeptical, believing that the tourist population and local consumption levels were insufficient to support such developments. However, practice proved them wrong—Hainan does have the purchasing power:
“When we first developed the Hainan market, the average spending of Hainan tourists was about 200 yuan, and by b2019 it had exceeded 2,000 yuan. Of course, there is still room for growth compared to the 15,000 yuan average spending in Hawaii. We need a more upscale project to boost the overall consumption on Hainan Island.
At that time, we contacted the LVMH Group, and it was a perfect match. We believed this location could support even greater high-end consumption.
After reaching a preliminary cooperation agreement in November 2019, Li quickly led Shenya Group to halt the construction of the fourth-phase hotel project that had already started and was undergoing foundation pouring, and instead refiled for construction. According to DFS’s requirements, the original pure hotel project was adjusted to a commercial-led, hotel-supported project.
Speaking of the special significance of Yalong Bay, Li added, “Yalong Bay was the first place in Hainan to be designated as an international tourism and leisure area. Back then, many foreign tourists didn’t even know Sanya, but they knew Yalong Bay. Yalong Bay’s status and role are crucial for both Hainan and Sanya.”
DFS Yalong Bay Project Rendering
—The “Hainan Free Trade Port” will help luxury brands develop more controllably and healthily.
LVMH Group CFO Jean-Jacques Guiony openly stated that DFS chose Sanya Yalong Bay precisely because China plans to develop Hainan into a free trade port by 2025:
“By the end of 2025, Hainan will achieve duty-free status, or even if not duty-free, a low-tax model similar to Hong Kong will be established. Thus, DFS is essentially replicating what it did in Macau about 15-17 years ago, allowing luxury brands to enter the (Hainan) market in a fully controllable and safe manner, hoping to achieve the same success in Hainan as in the Macau market.”
China’s duty-free industry started in 1980 and has developed for more than 40 years. The first domestic duty-free shop was the Shenzhen Duty-Free Shop, the predecessor of the Shenzhen Duty-Free Group, founded in January 1980 at Luohu Bridge in Shenzhen.
Since the introduction of the offshore duty-free policy in 2011, the state has continuously made a series of adjustments to the offshore channel, optimizing various aspects such as transportation channels, duty-free categories, duty-free limits, and frequency. Additionally, due to the constraints on outbound scenarios, consumption has flowed back, gradually making Hainan offshore duty-free a favored channel for duty-free purchases among travelers.
According to the “2024 Hainan Provincial Government Work Report,” in 2023, the sales of 12 offshore duty-free shops reached 58.09 billion yuan, a year-on-year increase of 19.3%, recovering to more than 90% of the 2021 level after experiencing a market cooldown in 2022.
In June 2020, the State Council issued the “Overall Plan for the Construction of the Hainan Free Trade Port,” proposing to build Hainan into the world’s largest free trade port by 2025. By then, the entire island of Hainan will become an “inland but outside customs” area, where the island can enjoy zero-tariff and other preferential policies, or “closing the customs.”
After the customs are closed, whether duty-free or taxable goods, no taxes will be levied in the B2B phase. Taxable goods will only be taxed a certain percentage of sales tax at the terminal retail stage, and the price advantage of duty-free shops over taxable retailers will relatively decrease.
—Hainan is expected to become a “dazzling luxury center.”
According to Luxe.CO’s monitoring of brand dynamics, this year, more than 30 overseas luxury and beauty brands have opened new boutiques, pop-up spaces, and collaborated with resort hotels for brand-limited time events in Hainan.
In recent years, Hainan’s duty-free shopping has made significant contributions to the prosperous development of China’s luxury market. According to Bain & Company, calculated at current exchange rates, the mainland Chinese luxury market grew by 9% in sales in 2023 compared to 2022, reaching approximately 58 billion euros.
In 2023, China’s domestic tourism industry began a full recovery, with a large number of returning tourists driving a rebound in luxury goods sales. At the same time, Hainan Province also introduced measures to stimulate luxury consumption. Under the influence of these dual factors, Hainan’s duty-free sales achieved about a 25% year-on-year growth, although it still has not returned to the 2021 level. It accounted for 10% of the overall market, a figure that was only 6% in 2018, still below the 11% in 2021.
Additionally, Bain noted that the growth rate of the number of shoppers in duty-free stores lagged behind the increase in the number of tourists, indicating a reduction in conversion rates. Meanwhile, the average spending per shopper also dropped by more than 25%.
This poses a higher challenge for future high-end commercial projects in Hainan. Apart from DFS, China Duty-Free Group and Swire Properties are steadily progressing with the third phase of the Sanya International Duty-Free City project; the nation’s first Tropical Joy City project is set to debut in 2024; and China Resources plans to build a super MixC…
LVMH President for Greater China, Andrew Wu, stated at the signing ceremony: “As a representative of the LVMH Group—one of the world’s most important high-end brand groups, I believe the focus on Hainan and the DFS Yalong Bay project comes not only from a group level but also signifies the broader international high-end brand industry’s attention and high expectations for Hainan’s development.
What we hope to see is the development of exquisite retail. The greatest value of new retail lies in how it can better serve Chinese consumers. The launch of the DFS Yalong Bay project is an outstanding manifestation of new retail, showing our unwavering support, and also reflects our confidence and expectations for the future development of China’s luxury retail market, Hainan, and even China.”
DFS Yalong Bay Project Rendering
| Image Credit: Provided by DFS
丨Reporter：Wang Jiaqi
| Editor: Liu Ruixue
