SOUTH KOREA. South Korean duty free sales in the first nine months of 2018 have exceeded total sales for 2017.

Sales hit an all-time high of US$12.9 billion between January and September, according to Korea Duty Free Shops Association figures cited by Yonhap News. That figure exceeds the US$12.8 billion recorded for full year 2017.

The performance comes despite a significant fall in the number of Chinese tourists to South Korea since the THAAD dispute erupted in early 2017, with a number of restrictions imposed by the Chinese government including a ban on group tours.

Daigou traders pictured repacking their wares at Incheon International Airport, often discarding the sku packaging.

As reported, the latest Korea Tourism Organization (KTO) figures showed that Chinese arrivals were up just +6.5% year-on-year (to 3,059,075) in the first eight months of 2018, reflecting a very tough first quarter before Korean-Chinese relations improved as the THAAD dispute eased.

In the first eight months of 2016 – long before the THAAD crisis began– some 5,608,046 Chinese arrived in South Korea. That figure is +83% higher than the 2018 performance over the same timeframe, highlighting the scale of the drop in Chinese tourist numbers.

A key factor driving sales is the daigou phenomenon. Daigou (also known as ‘shuttle traders’ in South Korea) buy goods abroad (predominantly cosmetics but also a wide range of accessories and other premium and luxury goods, as well as commodity items such as milk powder) and resell them (often through well-organised networks) on the Mainland.

Could a full lifting of the ban on group tours from China to South Korea be on the cards?

As reported though, a Chinese government crackdown on returning daigou shoppers after the Golden Week holiday (1-7 October) has raised serious questions about the future of a sector that has buoyed Asia Pacific travel retail in recent times.

Many South Korean retailers expect China to continue to ease economic and travel restrictions, including a full lifting of the ban on group tours in the near future.

The return of group tours would be a significant boost – and could mean the pendulum swings back from individual shuttle traders to large group tours and traditional FIT business in terms of being the key driver of duty free sales.