SOUTH KOREA. “The only people buying in duty free are resellers.” So says a leading duty free retailer, commenting to The Moodie Davitt Report on March channel data just reported by the Korea Duty Free Association.

While sales to Koreans in downtown duty free plummeted – with buyers cancelling their orders en mass because of outbound travel restrictions during the COVID-19 crisis – downtown duty free sales to foreigners increased +10.7% month-on-month, writes Min Yong Jung* in Seoul.

However, total duty free sales declined by -53.5% year-on-year in March to US$892.2 million (KRW1,087.3 billion). Sales to foreigners (mostly daigou) fell -46.4% year-on-year to US$871.1 million, the sector proving reasonably resilient despite travel constraints between Korean and China and the global spread of the coronavirus.

Sales to foreigners overall increased by +6.9% month-on-month, aided by Korean retailers working hard to assist daigou traders by providing enhanced logistics and greater rebates. Sales to Koreans collapsed by -92.8% year-on-year to US$21.1 million.

Sales to large corporate resellers as a proportion of total sales to foreigners have increased from 40% last year to well over 90% at Korea’s leading duty free retailers. Total sales per customer shot up from US$464.80 in March 2019 to US$1,517.70 in March 2020 – led by resellers who pushed up the sales per foreign customer to US$3,323 per person.

Source: Korea Duty Free Association, Moodie Davitt Business Intelligence Unit

Not only are Korean retailers facilitating the daigou trade, the combined weakness of the Korean Won – proxy for global and regional risk – and the stable Chinese Yuan has created a favourable condition for resellers to stock up on their wares. Compared to the beginning of the year, the Chinese Yuan is up by +5% against the Korean Won.

(Above and below) Koream duty free market sales by month and sales proportion represented by foreigners and Koreans

(Above and below) Korean duty free market growth rate by Koreans and foreigners + ASP per person by Koreans and foreigners

Times are tough in the world’s largest duty free market but there are signs that sentiment could soon turn positive.

Korean media devoted widespread coverage to comments by the Chinese Ambassador to South Korea Xing Haiming stating he will try to bring into force “fast-track” entry for South Korean businesspeople into China as early as May, as an exception to current entry restrictions over the coronavirus.

Korean duty free stakeholders are of the view that the country’s remarkably successful containment of the virus should see travel restrictions with China lifted in the short term.

(Above and below): Sales to foreigners broken down by traffic, sales and ASP growth – USD/KRW FX chart (below) to illustrate the weakness of the Korean Won; Source: Korea Duty Free Association, Moodie Davitt Business Intelligence Unit

Source: Korea Duty Free Association, Moodie Davitt Business Intelligence Unit

Chart: Duty free sales to Koreans have declined severely – increasing the importance of daigou to Korean retailers

Duty free sales to Koreans have declined severely – increasing the importance of the daigou business to Korean retailers; Source: Korea Duty Free Association, Moodie Davitt Business Intelligence Unit

Source: Korea Duty Free Association, Moodie Davitt Business Intelligence Unit

Source: Korea Duty Free Association, Moodie Davitt Business Intelligence Unit

*Note: Korean national Min Yong Jung, formerly based in London and since this month in Seoul, is Senior Retail and Commercial Analyst at The Moodie Davitt Report. His appointment in June 2019 was the first of its kind in travel retail media. It marked the creation of the Moodie Davitt Business Intelligence Unit, a new division designed to provide a new level of research and analysis for the travel retail channel.

Jung has a rich background in the travel retail channel and related consumer goods markets. Before joining The Moodie Davitt Report, he worked as an equity research analyst both on the buy and sell side of the finance industry at Kiwoom Asset Management and CLSA in Seoul. Jung is an arts graduate in International Affairs from George Washington University in the USA.

Do you have research needs related to the Korean and Asia Pacific travel retail and luxury markets? Min Yong Jung can be contacted at minyong@moodiedavittreport.com