Following years of continued growth in Chinese tourist arrivals and spending, this summer South Korean retailers faced tough times as the country’s MERS health crisis devastated the travel industry. According to recently released figures from the Korea Tourism Organization, the crisis—which was declared officially over in late July—dissuaded tens of thousands of tourists (most of whom would have been from mainland China and en route to Korea primarily for shopping).
Chinese arrivals in June dropped a massive 45 percent in June to 315,095, followed in July by an even more precipitous 63 percent decline year-on-year to 255,632. Combined, that’s a loss of nearly 700,000 tourist-shoppers in two months. The lucrative Chinese tourist wasn’t the only demographic that vanished from Korea’s glitzy malls and duty-free shops this summer: Japanese tourist arrivals fell 41.5 percent in June and 53 percent in July, reaching a tepid two-month total of just 182,954.
To put the importance of the Chinese and Japanese tourist in context, in the first seven months of the year the two nationalities accounted for nearly 59 percent of total arrivals in South Korea. (With Chinese visitors alone making up 45 percent.)
Over the course of the summer, Japan was the clear beneficiary of Korea’s tourism decline. According to the Japan National Tourism Organization, Chinese tourist arrivals in Japan doubled in the first seven months of 2015 to a record 2.76 million, and reaching a whopping 576,900 in July alone. Spending by Chinese travelers (many of whom would have otherwise shopped in Seoul or Jeju) was cited as a major driver of recent success in Japan among brands like Hermès, which noted a 27 percent increase in sales in the country in the first half of the year.
Spikes in Chinese tourist arrivals were recently noted around last week’s World War II victory celebrations in Beijing—according to Chinese travel site Ctrip, 2,013 Chinese travelers booked flights to Japan between Tuesday and Thursday of last week, nearly double last year’s 1,164. Those departing from Beijing—the site of the massive military parade—leapt to 616, up from just 153 last year. Japan has become a popular destination for families in particular, as well as middle-aged and older tourists lured by the ease of packaged tours and, increasingly, all-inclusive cruise ship travel.
Having been hit hard by MERS, South Korean tourism officials and retailers are looking ahead and investing in novel approaches to lure Chinese visitors back. In July, the South Korean government announced that it would spend up to 30 billion won (US$25 million) on tourism marketing campaigns that incorporated everything from “free promotional tours” to large-scale concerts by K-pop stars.
Although these efforts are aimed at a global (or at least pan-Asian) audience, Korea clearly knows which demographic it needs the most—as tourism vice-minister Kim Chong put it, “We are particularly eager to bring back Chinese tourists.” Travel retailers Lotte and Shilla are playing a pivotal role in trying to rejuvenate the Chinese tourism business. As one might expect, given their reliance on the Chinese tourist-shopper, Korea’s retail powerhouses are the ones leading this charge. Recently, Lotte Duty Free invited over 5,000 Chinese tourists to outdoor K-pop concerts in Busan, and the retailer plans to do the same in Seoul this month.
But it’s going to take more than a few K-pop concerts to get Chinese tourist figures back to where Korea wants them. If Korea is to compete with a resurgent Japan—which was, arguably, the hottest foreign market among Chinese tourists this summer—the country will have to leverage recent trends rather than fighting them. For example, Korea is well placed to continue to benefit from the growing popularity of cruises in China. From 2012 to 2014, the number of mainland Chinese tourists opting to take cruises rose to 697,000 from 216,700, a nearly 80 percent increase per year, according to the Cruise Lines International Association. Following nearly a decade of “testing the water” with smaller ships and nearby itineraries, major cruise lines like Costa and Royal Caribbean have gone all-in in China, with the latter recently basing its 4000+ room Quantum of the Seas in Shanghai.
However, Korean lines have yet to benefit from the boom. Recently, Hyundai Merchant Marine announced plans to compete with its Western counterparts and enter the cruise ship business with a ship that features on-board K-pop extravaganzas and a foreigners-only casino. Aimed (perhaps obviously) at Chinese tourists—who account for nearly 90 percent of cruise ship arrivals in South Korea—the upcoming ship will travel from Shanghai to Incheon then onward to Jeju.
It’s an open question whether cruise ships and K-pop will be enough to get Chinese tourist arrivals back to where Korea—and its powerful retailers—need it to be in the short term. Discounts and other perks around upcoming holidays like the Mid-Autumn Festival and Golden Week are to be expected, and travel will undoubtedly pick up again no matter what. But having been overshadowed in 2015 by nearby Japan, South Korea will have to work harder to either fight the Japan trend (by trying to out-perk Japanese destinations) or take advantage of it—by trying to convince Japan-bound travelers to spend a couple of days in Korea as well.
Either way, the MERS outbreak—although relatively short-lived—highlighted how much the Korean tourism industry, duty-free shops, and large-scale malls depend on the Chinese traveler, and how important it is for Korea to ensure the pipeline remains open no matter what.