Korea is China’s Favorite Place to Travel Again, but Not for Duty-Free

Korea’s travel retailers faced significant challenges over the past year despite the resurgence of Chinese tourists. Factors such as economic conditions and new regulations are influencing duty-free sales trends.

Background: The Impact of COVID-19 on Korean Duty-Free Retailers

Lotte Duty Free’s Strategy During COVID-19

During the pandemic, Lotte Duty Free, South Korea's largest travel retailer, expanded internationally to diversify its revenue base due to the significant drop in Chinese tourists. The company entered new markets, including Australia, Vietnam, and Singapore, to mitigate losses.

Decline in Travel Retail Revenue

Data from the Korea Duty Free Shop Association revealed a 23% decrease in travel retail revenue, plummeting to 13.8 trillion Korean won (approximately $10.1 billion) in 2023, compared to a high of $17.6 billion in 2019.

Rebound in Chinese Tourist Numbers

Surge in International Visitors

South Korea welcomed 3.4 million international visitors from January to March 2024, the highest quarterly number since the pandemic began. Chinese tourists accounted for over one million of these visitors, bolstered by the "Visit Korea Year" initiative.

Comparison with Previous Years

In 2023, only two million Chinese tourists visited Korea. The significant increase in Q1 2024 numbers provides hope for recovery, but challenges remain.

Challenges Facing Duty-Free Retailers

Competition from Japan

Japan's depreciated currency has made it a more attractive destination for Chinese duty-free shopping, despite Korea being the top outbound destination for mainland Chinese travelers.

Currency Conversion and Spending Power

The conversion rate of RMB to Korean won has increased by approximately 15% over the past five years. In contrast, the conversion rate to Japanese yen has surged by over 40%, making Japan a more appealing option for luxury spending.

New Korean Regulation

Effective February 1, 2024, new regulations limit shoppers to 50 SKUs for items like cosmetics and 10 for bags and watches. This deters Chinese shoppers accustomed to bulk purchasing for resale or gifting.

Efforts to Enhance Korea’s Appeal

Ministry of Culture, Sports, and Tourism Initiatives

In mid-August, the Ministry launched 11 new regional tourism products to attract foreign travelers. These products focus on nature, culture, cuisine, hiking activities, and K-pop experiences, promoted through online travel platforms like Klook, Viator, and Creatrip.

K-Beauty Promotions

K-beauty remains a significant draw for Chinese travelers. Duty-free outlets are heavily promoting K-beauty through discounts and new labels. Key players include LG Household & Health Care, Amorepacific, CJ Olive Young, and Korea Ginseng Corporation.

Incheon Airport Pop-Ups

Promotions and pop-ups are driving the duty-free market. Shilla Duty Free launched the Chanel Summer Club at Seoul’s Incheon Airport, themed around summer vacations and featuring multiple events and Chanel’s cosmetic lines.

Targeting Younger Travelers

Shinsegae Duty Free Campaign

Shinsegae Duty Free launched a summer-themed project called ‘Travel with Us,’ collaborating with boy band TWS to engage younger travelers. The campaign includes outdoor ads in Seoul and Incheon Airport, promoting TWS’s second mini album, Summer Beat.

Future Outlook

Economic Growth and Retail Sales

Korea's duty-free retailers hope to maintain sales levels seen this year, despite last year’s decline. The Bank of Korea expects economic recovery starting in the second half of 2024, despite weak retail sales dampening growth.

Global Competition

Chinese consumers now have more duty-free options than ever. Japan offers favorable currency rates and easy tax refunds, Hainan provides large duty-free allowances without needing a passport, and Europe offers attractive deals after tax rebates. These factors contribute to Korea losing its relevance in the global duty-free market.

Key Takeaways

1. Despite a rebound in Chinese tourist numbers, with over one million Chinese visitors in Q1 2024, South Korea's duty-free sales remain sluggish due to competition from Japan and Hainan.
2. South Korea's travel retailers, led by Lotte Duty Free, expanded internationally to markets like Australia and Vietnam after domestic duty-free revenue fell by 23% in 2023.
3. Efforts like K-beauty promotions and themed pop-ups at Incheon Airport, including Shilla Duty Free's Chanel Summer Club, face stiff competition.
4. New Korean duty-free regulations, effective February 1, 2024, restrict shoppers to 50 SKUs for items like cosmetics and 10 for bags and watches, deterring Chinese accustomed to bulk purchasing.
5. South Korea faces stiff competition for Chinese tourists, who increasingly favor destinations like Japan, Macau, and Europe, which offer more attractive shopping conditions and better deals.

Source : https://jingdaily.com/posts/korea-is-china-s-favorite-place-to-travel-again-but-not-for-duty-free