SOUTH KOREA. Chinese visitor numbers to South Korea grew just +1.8% year-on-year in November, continuing a sharp easing of growth that began in October (+4.7%).
Sources in Korea believe the slowdown is related to the government’s decision to deploy the US missile system THAAD from 2017, a move that deeply angered the Beijing authorities.
The numbers make deeply concerning reading given the South Korean duty free industry’s overwhelming reliance on Chinese business and fast-proliferating retail competition.
For the first 11 months of 2016, Chinese visitors accounted for 47.4% of all arrivals. Chinese visitor numbers for that period reached 7,532,186, up +36.5% on the MERS-ravaged 2015 and +32% on the first 11 months of 2014.
But the Chinese share of duty free sales is much higher. In the first nine months of 2016 foreigners accounted for just over 83% of downtown duty free sales countrywide – the vast majority generated by Chinese shoppers.
Nomura Securities projects a mere +5% rise in Chinese visitors to South Korea next year. If that’s anywhere near right, it will spell serious difficulties for some Korean duty free retailers already suffering from a damaging upward spiral of the fees they pay to Chinese tour agencies.
Chinese group tourist arrivals for November rose +10.35% to 452,082 but, worryingly, free independent traveller (FIT) numbers slumped by -35.2% to 59,723. In an increasingly competitive downtown duty free environment, Korean travel retailers are putting much emphasis on boosting the higher-spending FIT business and the latest numbers will ring alarm bells – especially as four new Seoul downtown duty free licences have just been awarded.
Nomura Securities recently projected a mere +5% rise in Chinese visitors to South Korea next year. If that’s anywhere near right, it will spell serious difficulties for some Korean duty free retailers already suffering from a damaging upward spiral of the fees they pay to Chinese tour agencies to bring travellers into their shops. Layer into that ultra-competitive environment the soon-to-be-reopened Lotte Duty Free World Tower store and two late 2017 newcomers in Hyundai Duty Free and Shinsegae Duty Free (the retailer’s second Seoul store) and you have the recipe for serious financial pressure on the industry.
The influential Jing Daily argued this week, “It’s likely that the future of Korean duty free, much like its tourism sector, lies within market diversification rather than a focused courtship of Chinese tourists.” That’s not a prognosis that Korean retailers will embrace, the problem with it being that no-one shops like the Chinese do.
More positively, Japanese arrivals rocketed by +29.5% to 213,211 in November (a 16.35% share of total arrivals), following +26% growth in October. Japanese arrivals rose by +25.2% year-on-year in the first 11 months to 2,100,684.
Korean outbound departures fell below the year-to-date average growth rate in both October (+7.5%) and November (+12.3%). For the first 11 months they were up by +16.2% over the same period in 2015.
*NOTE: Look out for a major South Korean market report in the February issue of The Moodie Davitt Report Print Edition.
