When Luxury Becomes Luxury, Where Does A Tax-Free Shop Go Astray?

Introduction: after the end of the epidemic, there will be no retaliatory rebound in domestic luxury consumption.

01 duplicate duty free shop Quotes

From 2017 to 2019, the duty-free shop industry went out of a huge market, leading the China national tourism area increased by 360%, Shanghai airport increased by 240%, the two companies have entered hundreds of millions of clubs.

Behind the strong stock price is the classic Davies double click, the market recognition has gradually given high valuation, the company's performance is also very good, EPS rapid thickening.

If we carefully disassemble the fundamentals, it is hard to say that this round of market bubbles, which is indeed a difficult "lying earn" business model.

First of all, we need to review the reasons why we have seen much in the past 3 years and see which logic has changed.

(1) luxury consumer demand is "great."

Chinese people's pursuit of luxury can be described with fanaticism. In 2018, China consumes the luxury of 1/3 in the world with the population of 1/5 and GDP of 1/6, totaling more than 600 billion yuan.

In addition to China's economic growth, the impetus behind this is the widening gap between rich and poor under the wealth effect. Some of them are entering the new middle class, and after 80 and 90, they believe in consumerism. And low income groups like the writer can only contribute GDP to their favorite country by buying vegetables.

Look at the first reason for many duty-free shops. With the sound and fast development of the national economy, the luxury consumption of Chinese people will continue to grow. It is optimistic that the consumption of Chinese luxury goods will reach 1 trillion in 10 years, after all, this is "consumption upgrading".

(2) consumption reflux with policy support

The purchase of national luxury goods has the following channels: domestic tax counters, tax-free / tax rebate shops, purchasing agents, and sea electricity providers. Among them, the purchasing agent is the largest diversion, but it does not have the exploratory nature of investment. The second largest channel is the duty-free shop.

Only 18% of the total duty-free outlets are distributed by domestic enterprises, leaving the market share of up to 82%, which has flowed into pockets of foreign capitalists.

Take South Korea as an example, South Korea began to focus on tax exemption since 1960s. After 50 years of development, the duty-free industry in Korea occupies a very important position in the world, and its sales volume is close to 1/5.

It also created the world's second largest duty-free retailer, "Lotte". Most of the duty-free goods sold by Koreans are bought by Chinese people. The sales of over 70% of duty-free shops in Korea are contributed by the Chinese.

Of course, policymakers obviously will not sit back and ignore the fact that "consumption reflux" has become the core. Therefore, since 2011, relevant departments have introduced policies such as tax exemption, entry tax exemption, electricity supplier law and other related policies in Islands.

This is obviously very effective. In 2018, sales of domestic duty-free shops reached 39 billion 500 million yuan, and the compound growth rate in the past ten years exceeded 25%.

The direct benefit of the policy is duty-free shops, because duty-free shops usually have a 30% price difference relative to those with tax products. However, compared with the potential "consumption reflux", the 40 billion yuan is still far from reaching the ceiling. After all, it is a big cake of 600 billion yuan, and at least 100 billion of the reflux space is removed from other channels.

So the high growth of duty-free shops will be normal.

(3) characteristic monopoly bonus

After analysis of the above two points, it is bound to be found that this is a very good business opportunity, but duty-free shops need license plates. Only China CITS occupy all the operational qualifications. As a result, airport operators can become a more important player because they can receive a fixed proportion. Domestic duty free shops are mainly tax-free at airports and Islands.

In 2018, the revenue of China CITS operating duty-free commodities was 33 billion 200 million yuan, with a market share of more than 85%.

As a SASAC holding enterprise, the CF basically controls the entrance of channels and parts of traffic. It can be said that an enterprise represents an industry. With its monopoly position, Ctrip enjoys the two bonus of "consumption upgrading" and "consumption reflux". The result is that even with a large amount of cash in hand, the ROE of CITS can reach nearly 25%.

02 the challenge of the duty free industry begins.

With the global spread of the new crown epidemic, more than 50 countries have entered a state of emergency. In the short term, the duty-free industry has been directly impacted by cross-border travel cuts or even zero. Take CITS as an example, following the recent pullback in the broader market, valuations have returned to the starting point of the last round of market in 2017.

But the question now is, is the 20% callback the end? If we look at it longer, the question we need to think deeply is, is this impact only short-term?

I believe that the impact of this epidemic on luxury consumption is not a short-term suspension. After the end of the epidemic, domestic luxury goods will not be retaliatory consumption.

For the rich, the recent financial market has fallen, and the wealth effect has subsided in the past two years. The "new middle class" is facing income reduction or even unemployment, and needs to reflect on consumerism. According to Maslow's demand stratification, the demand for luxury goods obviously needs to give in to basic demand.

"Cash is king" has become a bottom-up consensus.

However, the main supporting factors for the growth of duty-free shops are: consumption reflux and monopoly bonus will not disappear, so there will still be investment opportunities in the future. But the problem now is that not only short-term demand is disappearing, but medium-term demand may be under repair. Therefore, the growth of luxury consumption is facing major challenges.

And these are obvious places that the market has not yet addressed.

For duty-free shops, when the faucets that are not necessary to be consumed are tightened, they may fall into the trap of no wood or water. This is the basic tonality of luxury goods. Even strong as Moutai Guizhou, in limiting the three consumption and plasticizer industry bad hit, the stock price also cut.