SOUTH KOREA REPORT: OVERVIEW


Chinese reprisals impact South Korea sales


South Korea’s duty free industry has entered a period of uncertainty as a dispute over the US THAAD missile system continues between South Korea and China, as David Hayes reports.


T


his year South Korea had forecasted a 15-20% increase in total duty free sales – worth


about US$1.5bn to $2bn in extra retail revenue – following a robust 2016 during which sales rebounded strongly after a disastrous 2015 [due to an outbreak of MERS]. However, this forecast is now also


in jeopardy as a highly publicised dispute continues between China and South Korea. China, which claims that


THAAD technology infringes its national security, targeted various businesses under the Lotte Group after the conglomerate sold a golf course to the South Korean government for use to install the THAAD missile system. The Chinese government has


since widened state-backed reprisals in protest against the THAAD deployment to include targeting tourism and the duty free industry by banning agencies from sending group tours to South Korea. Customer numbers have dropped


as a result in South Korea’s downtown and airport duty free shops, most of which rely on Chinese visitors for a large share of sales. Exacerbating the issue is the fact that this recent upset with China has


MAY 2017


coincided with a domestic political crisis in South Korea. The recent impeachment of President Park Geun Hye over a corruption scandal has left the country in a leaderless limbo with no one to handle the dispute with Beijing until elections take place mid-year and a new president is appointed. Current uncertainty clouding the


duty free operators’ medium term outlook follows a record year for South Korea’s duty free industry in 2016. The world’s biggest DF&TR market registered a massive US$2.5bn increase in sales, up 30.9% compared with total revenue the previous year.


Foreign purchases $7.6bn Until the THAAD dispute surfaced, duty free operators in Seoul were forecasting that sales growth would ease to about 15-20% in 2017, on the assumption that foreign tourist numbers would continue to increase in line with expectations. Foreign visitors’ purchases


amounted to US$7.6bn in 2016 accounting for 72% of South Korea’s record total US$10.6bn duty free sales last year; a figure which includes all airport, seaport and downtown shops (including internet) sales, domestic


duty free sales on Jeju Island, but not airline inflight sales. South Korean travellers’ share


of sales was $2.9bn, equivalent to 28% of the national duty free revenue total. High duty free sales growth in


2016 comes as a result of the leap in foreign visitor arrivals, including 8m Chinese visitors. Overseas tourist numbers rebounded after the mid- 2015 MERS outbreak in South Korea, which affected most operators’ duty free revenue. Sales to foreign tourists, of which


about 80% were Chinese, increased by about 40% last year in value while South Korean travellers’ duty free purchases saw a +9.7% increase. Per capita duty free spending


among foreign visitors also grew last year, allaying fears among duty


Current uncertainty clouding the duty free operators’ medium term outlook follows a record year for South Korea’s duty free industry in 2016. The world’s biggest DF&TR market registered a massive US$2.5bn increase in sales, up 30.9% compared with total revenue the previous year.


TRBusiness TRAVEL RETAIL BUSINESS 89


Above: It’s an uncertain time for South Korea’s Lotte Duty Free.


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