SOUTH KOREA. South Korean duty free sales to foreigners surged +90.2% year-on-year in March, according to Korea Duty Free Shops Association figures first cited by The Standard and since independently verified by The Moodie Davitt Report. The figures come against the backdrop of the first growth in Chinese tourism in 13 months.
The huge increase in sales, to US$1.26 billion, was driven by the daigou (shuttle trader) phenomenon. The trade involves hundreds of thousands of Chinese shoppers purchasing Korean and international duty free goods for customers in Mainland China at well below prevailing Chinese domestic prices and then reselling them.
“70% of Korean duty free sales are to the Chinese and 90% of those are to daigou,” leading analyst Regina Hahm of Mirae Asset Daewoo told The Moodie Davitt Report. “Korean duty free is the cheapest retail channel in Asia, if you calculate the final discounted price (through the travel agencies). It’s a very efficient marketing channel (for China). The brands create the customer demand in China which the daigous fulfil.”
“Nowadays 70-80% of customers are daigou,” says CityPlus Free Senior Managing Director Merchandising Division Allen Hong, a veteran travel retailer. “And for some retailers it’s over 90%.”
Overall sales at South Korean duty free stores surged +67.4% year-on-year in March to a record US$1.56 billion. The average purchase by foreigners increased +48.6% to reach US$801, the Korea Duty Free Shops Association figures showed.
The latest figures from the Korea Tourism Organization (see tables below) showed that Chinese arrivals rose +11.8% year-on-year in March to 403,413, the first monthly rise since February 2017. March marks the one-year anniversary of when the tourism slump began as the row between China and South Korea over the latter’s deployment of US anti-missile system THAAD erupted.
Korean travel retail executives expect a full tourism recovery in the wake of improved South Korea-China relationships to take some time. However, as reported, the dramatic recent rapprochement between North and South Korea, is a big boost for the tourism sector and may accelerate the rejuvenation. Whether the restoration of conventional FIT and group tourism erodes the frenzied boom in daigou shopping is a key point of interest for Korean retailers.
Chinese arrivals to South Korea fell by -48.3% in 2017 compared with the previous record year but the daigou trade soared. As reported, the South Korean duty free market posted a +20.7% sales increase last year to a record US$12.8 billion despite a -49% crash in Chinese tourism.
Note: Look out for Martin Moodie’s major report from Seoul on the Korean duty free market, out in The Moodie Davitt Report Interactive and Print Editions early May.
