The Individual Visit Scheme (IVS) once played a pivotal role in boosting Macau’s economy, especially benefiting its gaming and retail sectors. However, experts are now raising concerns about the diminishing returns from the scheme. 

Johnson Ian, president of the Association of Synergy of Macao, recently warned that while the IVS initially provided significant benefits to Macau’s economy – particularly in gaming, the high-end retail and hospitality industries – the situation has shifted dramatically.

Speaking to AGB, Johnson Ian, president of the association, recently warned that while the IVS initially provided significant benefits to Macau’s economy, the situation has shifted dramatically.

He stated, “Since the liberalization of Macau’s gaming industry in 2002, the mainland Individual Visit Scheme began in 2003, bringing in a wave of prosperity. Casino operators and luxury brands reaped the benefits as many visitors from mainland China, buoyed by a strong economy, flocked to Macau to indulge in high-end shopping and dining. However, a shift in the economic landscape, especially in China, has caused these benefits to dwindle.”

The IVS allowed visitors from mainland China to travel to Macau more easily, resulting in booming tourism. Ian noted that the initial surge in visitors brought about a luxurious consumption culture, with visitors frequenting high-end restaurants and purchasing luxury goods such as designer bags and watches. However, he explained that the decline in this trend was not simply due to economic cycles but rather structural changes in consumer behavior.

“Today, the majority of Macau’s visitors are still from mainland China. But with China’s current economic conditions, we’re seeing a shift towards ‘affordable luxury,’ where consumers opt for local brands that offer similar products at a fraction of the price. This change is reflected in Macau’s retail sales data, particularly in the tourism market,” Ian added.

He emphasized that these shifts are prompting businesses in Macau, including casinos and retail outlets, to reevaluate their strategies. “Companies that previously profited from the influx of high-end consumers are now facing reduced revenue and profit margins. They have no choice but to adapt,” Ian warned.

Duty-free shopping increase may offer limited relief

Starting July, Chinese visitors are now allowed up to RMB15,000 ($2,064) in duty-free shopping in both Hong Kong and Macau, nearly doubling the previous limit. The policy was designed to stimulate economic recovery in the two Special Administrative Regions following the pandemic. However, Ian remains skeptical about its long-term impact.

“While easing the IVS restrictions will certainly help to some degree, it won’t have a significant impact, as policymakers may not have fully accounted for larger trends,” Ian commented. “In the short term, as China’s economy continues to face downward pressure and declining incomes, consumer spending is bound to shrink.”

He further highlighted the growing competition from other regions, particularly Hainan, which is rapidly emerging as a luxury shopping destination due to its tax-free policies. “By 2025, Hainan will become a zero-tariff zone, providing stiff competition for Macau and Hong Kong’s high-end retail markets. Many mainland Chinese consumers no longer need to wait for months to visit Macau for their shopping. They can just go to Hainan or even Europe, where prices may be more favorable,” Ian remarked.

Declining consumer spending and adjustments by businesses

Ian also pointed out that the enthusiasm for spending in Macau is waning, as evidenced by statistical data and retail trends. “Before the pandemic, in 2019, the average tourist spending was significantly lower than during the pandemic period when Macau was the only ‘foreign’ destination available to mainland visitors. Now, that high spending has dropped and we see the impact across multiple sectors.”

Evidencing these challenges, luxury retailer DFS Group laid off approximately 80 frontline sales employees in late August, marking the first significant reduction in its workforce since it entered the Macau market in 2008. 

DFS stated that the rapid changes in Macau’s luxury retail market had led to the difficult decision to cut its workforce by 5 percent. This move follows a sharp decline in business, with DFS reporting a revenue drop of nearly 40 percent compared to both last year and pre-pandemic levels.

In June, DFS had already begun trimming expenses amid the revenue slump, with the salaries of frontline employees cut by nearly 50 percent. The downturn was particularly pronounced in the cosmetics segment, with sales falling drastically since the latter half of the previous year.

Business strategy shifts

Ian noted that this trend is likely to continue, with more businesses expected to adjust their operations in response to declining revenues. “We’ve already seen some companies, particularly in mainland China and Hong Kong, reduce the size of their stores or even close some locations entirely. They may cut down on non-essential expenses like marketing campaigns or celebrity endorsements to cope with the downturn. I expect similar actions to follow in Macau.”

“Some luxury brands that previously rented large, multi-story spaces are now downsizing. Where they used to rent three floors, they now opt for two or even just one. This allows them to reduce overhead costs. In Macau, while we haven’t yet seen significant changes in the larger stores, it’s only a matter of time.”

Johnson Ian

The decline in consumer spending is forcing Macau businesses to adapt or risk further layoffs. “As companies face lower revenue, they need to find ways to safeguard employment and remain competitive. This could mean more workforce adjustments and store consolidations in the near future,” Ian concluded.

In light of these ongoing challenges, Macau’s policymakers may need to rethink strategies to support the local economy and ensure long-term stability.

Betting on the overseas market

Billy Song, president of the Macau Responsible Gaming Association, echoed Johnson Ian’s concerns, attributing Macau’s current economic difficulties to the crackdown on the VIP sector.

He told AGB that consumer behavior has shifted, with tourists now opting for shorter stays and spending less, making experience-focused tourism more prevalent.

Song emphasized that the high-spending VIPs, once a major driver of Macau’s casino revenue, are now being replaced by less affluent tourists. This shift in consumer behavior has led to changes in marketing strategies and adjustments in the structure of Macau’s hospitality and retail sectors. He also noted that many high-end retail stores and luxury hotels have experienced a noticeable decline in demand due to these changes.

Given these circumstances, Song argued that Macau must focus on attracting international visitors, especially high-end tourists, to counterbalance the reduced spending from mainland Chinese visitors.

He pointed out that while Macau has reopened to the world, it has not effectively marketed itself to overseas travelers, falling behind compared to its efforts targeting the mainland. For Macau to sustain its economy, Song believes that stronger policies and initiatives are needed to attract more affluent international visitors.