South Korea is China’s fav place to travel again, but not for duty-free

During the Covid years, Lotte Duty Free, the biggest travel retailer in South Korea, made a conscious effort to expand its international presence. The company entered the Australian market in downtown Sydney and then Melbourne Airport, ousting Avolta—and it has also expanded in Vietnam, and Singapore. The geographical push was essential to diversify the retailer’s revenue base after the collapse of Chinese travelers in its home market. Data from the Korea Duty Free Shop Association indicate that travel retail revenue fell by 23% to 13.8 trillion Korean won last year (about $10.1 billion). This compares with 2019’s $17.6 billion high. With Chinese numbers rebounding again there are hopes that Korean domestic duty-free sales will finally take off. According to the Ministry of Culture, Sports and Tourism, the country had 3.4 million international visitors from January to March, the highest quarterly volume since the Covid-19 outbreak began. Of that number, Chinese visitors topped one million, helped by 2024 being designated "Visit Korea Year". Compared with just over two million Chinese tourists for the whole of 2023, the Q1 figure looked pretty good. But probably not good enough to see a decent sales pick-up for Lotte and its travel retail competitors like Shilla Duty Free, Shinsegae, and Hyundai City Outlet. Right now, Japan is a big rival; its depreciated currency is attracting Chinese duty-free spending to the detriment of South Korea even though the latter is back as the top outbound destination for mainlanders, according to a new report from travel tech player Sabre. Numbers aren’t everything Thomas Piachaud, Head of Strategy at luxury data consultancy Re-Hub, told Jing Daily: “While the number of Chinese mainland travelers to Korea has reached pre-pandemic levels, other factors need to be considered when looking at the return of duty-free spending. “The conversion of RMB to Korean won has seen an approximate 15% increase over the past five years, compared to over 40% for RMB to Japanese yen. Given the similar distances and accessibility of Japan and Korea, the former is likely to see more luxury spending.” Another factor is the extra regulation that was introduced in Korean duty-free from February 1, 2024 to curb the buying excesses of diagou shoppers in places like Hainan. Piachaud said: “There is now a limit of 50 SKUs on certain items including cosmetics, and 10 on bags and watches. Additionally, enforcement of hand-carry rather than freight options limits individual spending potential.” For Chinese consumers wanting to shop at scale—possibly for friends and family—this will be off-putting. The Sabre report suggests that, while Korea is their top travel market again, the fastest-growing destinations globally for Chinese travelers this year are Macau, Australia, Japan, and Russia, helped by declining airfare prices and more outbound airline capacity. Duty free retailers, and Korea itself, are pulling out all the stops to be more attractive. In mid-August, the Ministry of Culture, Sports and Tourism launched 11 new regional tourism products to attract foreign travelers themed around nature, culture, cuisine, hiking activities, and of course K-pop. These very-specific tourism products are being introduced now through online travel platforms like Klook (for Chinese speakers), Viator (for the American market), and Creatrip (which is global). Separately, K-beauty remains a pull for Chinese travelers and duty-free outlets are heavily promoting K-beauty though discounts, and by adding more labels. Among the key players here are LG Household & Health Care, Sulwhasoo’s owner Amorepacific, CJ Olive Young (a retailer), and Korea Ginseng Corporation. In Seoul, beauty and nail salons, and cosmetic surgery clinics in shopping and tourist districts like Myeongdong, Gangnam, and Hongdae also take part in city-wide events that focus on discounts and giveaways. Inward looking Promotions and pop-ups are driving the duty-free market at the moment, many targeting outbound Koreans as well as foreign travelers. A good example is Shilla Duty Free’s July launch of the Chanel Summer Club at Seoul’s Incheon Airport, said to be the largest in Asia. The pop-up will be in place until September 20, themed around summer vacations offering multiple events and the chance to experience Chanel’s cosmetic lines and signature scents including Les Exclusifs de Chanel. Shinsegae Duty Free also launched a summer themed project called ‘Travel with Us’ in July—its second collaboration with boy band TWS as ambassadors. The retailer is targeting younger travelers by blending “the thrill of first trips with the allure of duty-free shopping” and is using outdoor ads in locations around Seoul and at Incheon Airport. TWS are currently promoting their second mini album Summer Beat. Moving into the third quarter, Korea’s duty-free retailers are hoping to at least maintain the sales levels seen so far this year given last year’s fall. They know that Chinese tourists have more duty-free options than ever about where to travel intra-Asia and further afield—and that looks like it will be bad news for Korea. In July, the Bank of Korea cited weak retail sales in dampening economic growth but it expected a recovery “starting in the second half of this year.” But a blunt reality faces the market. Piachaud said: “Chinese consumers are now spoilt for choice for duty-free locations. Japan has a favorable currency rate with easy tax refunds; Hainan offers a large duty-free allowance without the need for a passport (only 13% of Chinese have one); and Europe offers some of the best deals after tax rebates. Korea is likely losing its relevance in global duty-free when it comes to the Chinese consumer.”

South Korea is China’s fav place to travel again, but not for duty-free

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Published August 26, 2024

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South Korea is China’s fav place to travel again, but not for duty-free