The Korea Herald

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Duty-free retailers eye China’s reopening

By Lee Yoon-seo

Published : Feb. 28, 2023 - 17:27

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Crowds of tourists walk in the Incheon Airport Terminal 1. (Herald DB) Crowds of tourists walk in the Incheon Airport Terminal 1. (Herald DB)

South Korean duty-free retailers are expected to see a bump in profits this year with the return of Chinese tourists, according to a Bank of Korea report released Tuesday.

This year the number of Chinese tourists visiting Korea is estimated to reach 2 million –10 times last year’s 200,000.

The Korean government’s lifting of mandated PCR tests for Chinese tourists upon arrival and the recent resumption of short-term visa issuance for Chinese nationals were cited as key driving factors.

The report said Korea’s retail sector, especially duty-free, is expected to enjoy a boon from the increase in Chinese tourists. Currently, almost 90 percent of the nation’s duty-free sales are dependent on Chinese consumers.

Last year, Chinese tourists were the largest foreign spenders, with a visitor from the neighbor to the west spending an average of $1,689, outpacing $1,106 from the US and $675 from Japan.

“This year, Hotel Shilla’s sales are expected to grow by 1 percent, with its operating profits surging by 76 percent,” said Park Shin-ae, a researcher at KB Securities, in a recent report, citing a surge in Chinese visitors.

Better profits for Korean duty-free shops also come from lower commission fees for "Daigung," or Chinese bundle dealers who buy goods in bulk in Korea to sell them back in China.

Industry watchers say commission fees make up almost 40 percent of Daigung sales, but the return of Chinese travelers is expected to help reduce the fee rate.

“The Daigung fees surged during the pandemic years because local retailers had no other option,” an official from the Korean Duty-Free Association said. “For instance, Hotel Shilla reportedly paid some 42 percent of its duty-free sales as commission fees to Daigung, which means they were getting almost half the profits only.”

“With the return of Chinese travelers, Korean retailers are expected to lessen burdens from the commission fees,” the official added.