Daigou dilemma as Chinese visitor slump to South Korea eases – but not much

SOUTH KOREA. The catastrophic decline in Chinese visitor arrivals to South Korea since March eased marginally in September, according to figures just released by Korea Tourism Organization.

Chinese arrivals fell -56.1% year-on-year in August, to 339,388. This was a case of the ‘best bad news’ since March, when the slump – linked to South Korea’s deployment of US anti-missile system THAAD – began.

On 15 March, China retaliated by imposing a ban on group tours to South Korea, prompting a -40% year-on-year fall in Chinese visitors in March. This was followed by successive monthly declines of -66.6%, -64.1%, -66.4%, -69.3% -61.2% from April through August. For the first nine months of 2017, Chinese arrivals decreased by -49.6 to 3,192,248. That represented 32.1% of visitors, compared with 46.8% for the calendar 2016.

“The Daigou situation is a real mess and threatens the most important luxury consumer in the world”

South Korea’s travel retail sector has been hard by the sustained decline. However, sales have been compensated to a considerable extent by a surge in the ‘shuttle trader’ or ‘daigou’ market – Chinese travellers visiting for the sole purpose of buying duty free items and reselling in China. While the volumes have been huge, travel retailers are having to pay heavy commissions to the daigou tour operators, hitting profitability.

Business has rebounded and orders for August and September “are hotter than ever before” – Daigou trader

Mounting supplier concerns over the boom in this unofficial business culminated in leading Korean beauty firm Amorepacific introducing new limits from 1 September on the number of items that customers can purchase.

International brands are also concerned about the rise of the daigou business. “It taints both the purpose and image of duty free,” said one beauty company executive. “It is fatefully short-sighted.”

“We have taken a very aggressive stand against Daigou, stopping product flow into the downtown stores on the most popular Daigou products with significant implications on the business,” another senior brand executive told The Moodie Davitt Report.  “The Daigou situation is a real mess and threatens the most important luxury consumer in the world.”

In an article last month titled ‘China’s Harsh Words Mask a Trade Boom With South Korea’, The New York Times quoted a Korean duty free shop employee called Song Yang, whom it said takes two suitcases filled with about US$6,000 worth of skincare products to China every two months. Ms Song accepts orders on Chinese social media platform WeChat and makes about US$1,800 per trip, the report said.

She told the newspaper that she had stopped taking orders for about two months after demand plummeted in March. But business has rebounded and orders for August and September “are hotter than ever before”, she said.

Japanese and Korean travel numbers strong

More positively, Japanese arrivals rose +5.4% to 219,968 in September and by +3.9% for the first nine months. The Korean outbound travel sector remained vibrant in September, rising +17.4% to 2,236,500. For the first nine months, Korean departures were up by +17.7% to 19,632,010.

Other than, arguably short-sightedly, promoting the daigou business to offset their losses, Korean travel retailers have little choice but to sit back and hope the dispute with China ends or eases.

However, that doesn’t look likely to happen anytime soon. And when it does, there is no guarantee that the Chinese, their travel patterns diversified by this year’s events, will come back in their former numbers.