Korean duty free market posts +17% first-half gain over troubled 2015

SOUTH KOREA. Duty free sales (excluding inflight) reached US$4.9 billion in the first half of 2016, an increase of +17.28%, according to the Korean Duty Free Association.

Sales reached US$869.68 million in June, a +84.3% leap year-on-year. Sales in June 2015 were devastated by the MERS health crisis which began in May and resulted in a huge decline in foreign visitors, notably the high-spending Chinese.

The extent of the swing can be seen from new Korea Tourism Organization figures (see chart at foot of this story) that reveal a +140.7% year-on-year increase in Chinese visitors to South Korea in June and a 78% rise in Japanese arrivals. Chinese visitors represented 48.8% of total arrivals in June and an even higher percentage of duty free spending. For the first six months, Chinese arrivals rose +27.2% year-on-year to 3,816,756.

Duty free purchases by foreigners (mainly Chinese with Japanese the next most important nationality) more than doubled from US$269.2 million in June 2015 to US$624.56 million this June.

Korean_Duty_Free_Market_2016_1st_half Korean_Duty_Free_Market_2016_1st_half_graph

Downtown duty free sales in the first half rose +26.71% year-on-year to 3,480 million but airport and seaport sales (principally Incheon International Airport) declined by -2.06% to US$1,168 million. The latter though rose +25.92% in June, driven by the MERS-related June 2015 slump.

‘Offshore duty free’ sales to Koreans on Jeju Island (JTO and JDC) rose +5.15% in the first six months to US$245,804,291.

However, there is a potentially important dampener on second half Chinese tourism arrivals – South Korea’s recent decision to deploy the advanced US missile defence programme THAAD in a rural area some 220k southeast of Seoul by late 2017.

The decision outraged the Chinese government. Soon after, China’s powerful Tsingtao Brewery made a late decision not to partake in the Daegu Chimaek (chicken and beer) Festival, which began on 27 July. Similar cancellations have followed, according to The Korea Bizwire.

“We see a rising number of Chinese tourists cancelling travel reservations that were scheduled for August,” a tourism industry official told the media title on Thursday, after a meeting of travel agencies that specialise in hosting Chinese tourists.

 The report said that Korean tour agencies are having difficulty recruiting Chinese tourists for the three-day Golden Week holiday which begins on 1 October in China.

 “We’ve had a soaring number of Chinese tourists visit in recent years with improving Korea-China relations,” said Choo Shin-gang, President of the Asia Inbound Tourism Association. “But the latest THAAD deployment decision has badly damaged the industry, and we expect to continue having difficulties attracting Chinese tourists for quite some time.”

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The latest Korea Tourism figures underline the dramatic rebound in Chinese and Japanese visitor numbers from the MERS-ravaged June 2015. But could the THAAD controversy slow the recovery?
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