The government is pushing for a temporary visa exemption for Chinese group tourists starting in the third quarter of this year (July to September), raising expectations in the duty-free industry. As the duty-free market has struggled to recover since COVID-19, attention is focused on whether the return of Chinese group tourists will lead to a performance rebound.
According to the duty-free industry on the 25th, the government plans to announce detailed implementation plans for the temporary visa exemption for Chinese group tourists in the third quarter next month. Since the number of Korean tourists visiting China increased by 60% year-on-year within three months after China implemented visa-free entry for Koreans in November last year, many in the industry believe that there will also be positive effects from the visa exemption domestically.
According to the Korea Tourism Organization, the number of Chinese tourists, which approached 8 million in 2016, halved to 4.6 million last year due to the THAAD (Terminal High Altitude Area Defense) issue in 2017 and COVID-19 in 2020.
Despite the decrease in Chinese tourists, domestic duty-free shops increased sales targeting Chinese Daesang traders, peaking at 24.8586 trillion won in 2019. However, as the commission paid by duty-free shops to Daesang traders soared up to 50% during the COVID-19 period, duty-free shops reduced their commission rates to the 30% range to improve profitability, resulting in last year's domestic duty-free shop sales shrinking to 14.2249 trillion won.
The individual performances of duty-free operators are also poor. Shinsegae Duty Free reported an operating loss of 69.7 billion won last year, turning to a deficit for the first time in four years. Together with Shinsegae Duty Free's loss of 35.9 billion won and Hyundai Duty Free's loss of 28.8 billion won, Lotte Duty Free, which has yet to announce its results, is also expected to face an annual deficit, having accumulated an operating loss of 92.2 billion won for the first nine months of last year. Shinsegae Duty Free suspended operations at its Centum City store in Busan last January.
The industry expects that the implementation of the visa-free policy for Chinese group tourists by the government will pave the way for recovery in the market. Particularly, Lotte Duty Free, where the proportion of Chinese customers reached 70% and the sales proportion reached 90% just before COVID-19 in 2019, has high expectations for related policies. This duty-free shop recently suspended transactions with major Daesang traders, increasing optimism about the effects of this government policy.
Lotte Duty Free is working with travel agencies to develop duty-free store visit itineraries for Korean travel products, while reestablishing a payment system for Chinese customers and planning separate marketing to strengthen promotions.
A representative from Lotte Duty Free noted, "In 2017, an average of 10,000 Chinese group tourists visited our main store in Myeongdong, Seoul daily," and added, "Currently, an average of 10,000 group tourists visit monthly, and since they account for 40% of total sales, we expect an increase in sales due to the rise in Chinese group tourists after the third quarter."
However, some see the long-term sluggishness of China's domestic demand as a stumbling block. Last year, the duty-free sales in Hainan, which the Chinese government created to encourage Chinese consumers to shop domestically, decreased by 29% compared to the previous year. During this period, the number of tourists visiting Hainan also dropped by 16%. Additionally, it is noted that the shopping hubs for Chinese travelers visiting Korea have shifted from duty-free shops to street shops in areas like Seongsu and Hongdae.
In response, Shinsegae Duty Free plans to secure high-value tourists through MICE (Meetings, Incentives, Conventions, and Exhibitions) and medical and beauty group tourism. This month alone, the visit of about 2,000 corporate and incentive group tourists from China and Thailand is scheduled. Furthermore, by collaborating with travel agencies to run medical and beauty tourism programs, they aim to attract more than 400 customers monthly and over 5,000 annually.
In addition, there are plans to remodel stores focusing on brands favored by Chinese tourists and to implement advertising through social media, as well as partnerships with Chinese payment services.
A representative from Shinsegae Duty Free stated, "By focusing on premium business tourists with high spending per customer, we are implementing a strategy to reduce store congestion while increasing sales efficiency," and noted, "We expect the visa exemption for Chinese group tourists in the third quarter to invigorate the duty-free industry as a whole."