SOUTH KOREA. The travel retail sector got off to a strong start in January as Chinese and Japanese visitor numbers surged and duty free spend per head rose 10.1% to KRW933,084 (US$833). The total duty free market rose 10.5% year-on-year to US$1.53 billion, we can reveal.

Travel retailers, brands and the investment community are watching the early 2019 market performance closely to monitor the impact of China’s new e-commerce law introduced on 1 January. The revised regulations are in part designed to curb the flourishing daigou business (particularly important to Korean duty free but also a factor for many other travel retailers around the world serving Chinese passengers).

So far, buoyed by strong visitor figures and the positive effect of pre-Chinese New Year shopping, no tangible impact has been identified in South Korea, according to local sources.

Selected visitor arrivals to South Korea by nationality and purpose January 2019. [Source for all tables: Korea Tourism Organization]

Chinese arrivals rose 28.7% year-on-year in January to 392,814, according to Korea Tourism Organization figures. That represents a 35.6% share of total inbound travellers.

While that’s an encouraging start to 2019, the comparison base month of January 2018 was affected by the then-unresolved row between South Korea and China over the former’s deployment of US anti-missile system THAAD.

Selected visitor arrivals to South Korea by nationality and age January 2019. [Source for all tables: Korea Tourism Organization]

In January 2018 Chinese arrivals fell 46.0% to 305,127. The January 2019 figure, while much improved, is still almost 31% off the figure from two years earlier.

Japanese visitor arrivals rose by 23.6% in January 2019 to 206,526 (an 18.7% share), while departures by Korean nationals grew just 1.6% to 2,912,331.

Selected visitor arrivals to South Korea by nationality and gender January 2019. [Source for all tables: Korea Tourism Organization]

“So far, so good” but uncertainty over Daigou business grows

According to Korea Duty Free Association figures seen by The Moodie Davitt Report, there were a total of 4.3 million visits (including multiple visits by individual travellers) to the country’s duty free shops in the month, a mere 0.1% increase year-on-year. But spend per head soared and therefore sales increased by a much higher rate, according to a senior retail source.

The Korea Herald reported that sector giant Lotte Duty Free posted a 20% year-on-year rise in sales at its Myeong-dong, Seoul flagship in January [Update: Lotte has confirmed the figure to The Moodie Davitt Report], suggesting that the daigou business is still prospering.

However, considerable uncertainty lingers over the future of this unofficial resale channel into China. A leading retailer told The Moodie Davitt Report, “Many worry that from the second quarter of this year the Chinese e-commerce law will be enforced at a more practical level and it will influence sales more visibly.”

Daigou traders at Busan Gimhae Airport (above) and Incheon International Airport (below) repack their downtown duty free purchases. Will this sector still flourish in 2019 in the face of the new Chinese e-commerce regulations? [Pictures: Martin Moodie]

Lotte Duty Free’s flagship store in Myeong-dong, Seoul has got off to a rip-roaring start in 2019.

Overall, however, the January numbers are a positive read for Korean duty free. Market fundamentals remain strong – strong traffic growth; Korean products remain well-perceived and attractively priced; while the country’s geographic proximity to China and clever use of social media, e-commerce and hallyu (Korean Wave) marketing remain vibrant factors.

According to another source, other key issues for Korean travel retail this year include the introduction of arrivals duty free stores, and controversial government plans to create more duty free licences this year.

Note: The Moodie Davitt Report Founder & Chairman Martin Moodie, who has visited South Korea every year since 1989, will be in Seoul in March to present an unrivalled insight into the world’s biggest duty free market.

Departures by South Koreans by gender (above) and age (below) January 2019. [Source for all tables: Korea Tourism Organization]