DFS Group, the travel retail division of luxury conglomerate LVMH, announced on Tuesday plans to establish a significant shopping and entertainment complex on China's tax-exempt Hainan island. The move is aimed at tapping into the growing tourism market that has demonstrated resilience amid economic downturns.
Described as an "unprecedented investment," the 128,000-square meter project is expected to open its doors by 2026. It will feature over 1,000 luxury brands, including those from LVMH Moet Hennessy Louis Vuitton SE (OTC:LVMUY). The firm anticipates attracting 16 million visitors annually by 2030, offering not only shopping but also accommodation, dining and entertainment facilities.
The project signifies DFS's first physical branch in mainland China. Currently, the company operates 12 stores in Hong Kong and Macau. The expansion is part of a series of commitments DFS is making in the country, according to DFS China President Nancy Liu.
The move underscores an increasing awareness among global brands that China's affluent consumers are shifting towards purchasing luxury goods domestically, particularly in the aftermath of COVID-19. Hainan has emerged as a domestic hub for high-end duty-free shopping and has seen a continued sales boom even after Beijing eased strict COVID Zero restrictions that facilitated international travel.
However, a post-pandemic economic slowdown and a declining youth job market have shaken the country and dented some consumers' confidence. While LVMH's expansion signals longer-term optimism for China's luxury market, it faces an economy that only recently started showing signs of recovery. This situation has led to a sell-off in European luxury stocks amid softening demand.
Despite these challenges, domestic tourism has defied the slowdown, becoming a rare consumer bright spot. Chinese residents are increasingly seeking immediate gratification amid an uncertain economic outlook. With the addition of the DFS complex, Hainan could potentially outshine existing shopping hubs like Hong Kong, which has seen a decline in regional relevance for international luxury brands.
DFS Chairman and Chief Executive Officer Benjamin Vuchot stated that the new complex represents "the clearest commitment we can make to the long-term development" of China's tourism market. He added that Hainan is on track to become one of the world's largest luxury retail markets in the next five years.
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