The Korea Tourism Organization (KTO) announced on Jan. 7 that 5,000 executives and employees of a Chinese health food and equipment manufacturing company in Shenyang will visit Korea on incentive tours for six days until Jan. 12. This is the largest group of Chinese tourists since 2017 when China banned group tours to South Korea in the wake of the Seoul government’s decision to install the U.S. Terminal High Altitude Area Defense system.
Korean duty-free shops and cosmetics companies, which had been heavily dependent on Chinese tourists, have been in a long slump since the ban. Lotte Duty Free, the largest duty-free shop in Korea, suffered a loss in 2017. Although it managed to post a surplus in the following years by taking steps to strengthen profitability, it has yet to recover to its previous level. Duty-free shops in downtown areas also saw their performance deteriorate sharply as Chinese tourists were cut off. Following Hanwha Galleria, Doosan and Top City pulled out of the downtown duty-free shop business.
Cosmetics companies were also hit directly. AmorePacific saw its operating profit halved to 482 billion won (US$41 million) in 2018 from 848.1 billion won (US$727 million) in 2016. Last year's performance has yet to be released, but financial information provider FnGuide estimated AmorePacific's operating profit at 455.3 billion won (US$390 million), down 5.53 percent from a year earlier.
However, the distribution industry is expected to make a turnaround as Chinese tourists are beginning to flock to the country. The recent Korea-China summit ended on a positive note, raising the prospect of the group tour ban being lifted earlier than expected. Earlier, the Blue House announced on Dec. 25 that Chinese President Xi Jinping will visit Korea in the first half of 2020. Ha Joon-young, a researcher at Hi Investment & Securities, said, “China is likely to lift the tour ban around Xi Jinping's visit to Korea. This will boost duty-free sales.”
However, even if the ban is lifted, it is difficult to expect a sharp increase in sales of duty-free shops. "As the key players in the Korean duty-free market these days are Chinese peddlers who purchase goods in Korea for sales in China, an increase in the number of individual Chinese tourists is not expected to immediately increase duty-free sales,” an industry analyst said.