Duty free shops rebound on Chinese buying spree

By Nam Hyun-woo

Duty free shops are enjoying a major business turnaround on a buying spree by private Chinese vendors.

The outlook for their future performance is even rosier, with the Chinese government moving to allow tour groups to visit Korea again.

According to the Korea Duty Free Shops Association, Friday, sales of domestic duty free shops reached $1.34 billion for July, up 36.7 percent from $983 million a year earlier. Among the July sales, $1.03 billion were by foreigners.

The data also showed that the average amount of spending per foreign shopper was $694, which is 5.6 times more than that for Koreans with $124.

Duty free shop operators attributed the surge to Chinese private vendors, who are buying up Korean goods to have margins by reselling them in China, whose market shows a great demand on Korean goods.

“Domestic duty free stores sales increased in the first half, due to the Chinese vendors' contribution,” KB Securities analyst Park Shin-ay said. “However, we need to confirm whether these demands could be maintained for a while, and the visibility of domestic duty free sales in the second half should be recovered first.”

Sales at duty free shops have been declining for four consecutive months. After setting a record high in March with $1.57 billion, the number stood at $1.52 billion in April, $1.49 billion in May and $1.42 billion last month.

“However, we don't believe that is a worrisome situation,” a duty free shop official said. “Outlook is rather rosy that the number of inbound Chinese tourists is growing, while the Chinese government is gradually lifting its regulation on Korea tours.”

According to the Korea Tourism Organization, the number of inbound Chinese tourist in July stood at 410,337, up from 379,891 from a month earlier.

Though the number is still below that of 2016 and early 2017, when China's economic retaliation against Korea's decision to deploy a U.S. Terminal High Altitude Area Defense battery on its soil took effect, but inbound tourists have been steadily increasing so far this year.

Also in the second half, China's National Day holiday week and Mid-Autumn Festival is scheduled, which are expected to raise the number of Chinese tourists here.

Also raising the hope is the Chinese government's move to partially lift the unofficial boycott on group tours to Korea.

According to local news reports, the city of Shanghai informed three to four travel agencies that they can resume selling package tour programs to Korea, after halting them for longer than a year. With the move, Shanghai, Beijing, Chongqing and two other Chinese regions now allow group tours to Korea.

While some duty free officials say it is an optimistic move because Shanghai accounts for nearly 25 percent of China's outbound travelers, others say it will not necessarily raise the number of Chinese tourists in the short term.

This is because their business is still affected by China's unofficial policy of prohibiting advertisements, chartered airplanes or cruise ships and using Lotte affiliates, including Lotte Duty Free and Lotte Hotel.

“Though it remains to be seen, if the group travel boycott is lifted, it will help duty free shops to gain momentum in recovering their earnings,” the official said.

In the first half of this year, the big three duty free shops of Lotte, Shilla and Shinsegae each logged improved numbers. Lotte posted 155 billion won in operating profit in the first six months of this year, up a whopping 1,995 percent from a year earlier when it was hit hardest by the China's boycott.

Shilla also logged 111.6 billion won in operating profit during the same period, up 347.6 percent from a year earlier. Shinsegae in the first half recorded 45.8 billion won.