[2016 outlook for duty-free shops ①] The number of tourists visiting Korea is expected to increase by 24% to 16.5 million this year, and the Warring States Period in duty-free shopping opens.
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[2016 outlook for duty-free shops ①] The number of tourists visiting Korea is expected to increase by 24% to 16.5 million this year, and the Warring States Period in duty-free shopping opens.
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  • 승인 2016.01.05 16:22
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By Kim Sun-ho on January 3, 2016

The Ministry of Culture, Sports & Tourism says, “We are planning to attract 16.5 million foreign tourists in 2016.” The number of foreign tourists will increase by about 24% over last year. 

Even if foreign tourists visiting Korea increase, the number of duty-free shops will also increase so much that there will be fierce competition in the duty-free market.

 

A_1224 Photograph=Baek Jin/ The Incheon International Airport is packed with tourists.

 

The Ministry of Culture, Sports & Tourism said on December 30, “In 2016 we will attract 16.5 million foreign tourists, and in 2017 we will have 20 million foreigners come to Korea,” presenting a specific goal. Looking at the grounds for this outlook, the number of tourists visiting Korea increased by 6~9% YoY every month in 2015 except June, July and August when MERS (Middle East Respiratory Syndrome) was rampant. As the domestic duty-free market is sensitive to changes in the number of foreign tourists, an increasing number of tourists are expected to visit Korea in 2016. Accordingly, the sales can possibly increase over 2015. As new players appeared in the downtown duty-free market in Seoul and new duty-free shops popped up in new locations, however, ‘dog-eat-dog competition’ is anticipated in the domestic duty-free market, reminding us of the ‘Warring States Period.’ Let’s look back on the tourist and duty-free market of 2015 and forecast the tourist and duty-free market of 2016.

▷ The targeted number of foreign tourists is rosy in 2016, but we have to prepare thoroughly for ‘unexpected variables.’

Last year the tourist and duty-free market experienced confusion along with a big crisis. The sudden outbreak of MERS (Middle East Respiratory Syndrome) in June cut the number of tourists visiting Korea in half. It led to the sharp decline in the number of Chinese tourists, the ‘big spenders’ in the global tourist market, and the domestic duty-free market took a direct hit.

In June 2015, 329,044 Chinese tourists visited Korea down 50% from 628,736 in June 2014. In July and August the number of tourists was halved, but in September the number began to increase gradually. The total number of foreign tourists who visited Korea in 2015 was about 13.24 million (The number of visitors in December 2015 is an estimate based on that of December 2014). The total number declined by about 7% in 2015 from 14.27 million in 2014, but the consensus is that ‘it was not too bad.’

It directly shows that the tourist market can violently fluctuate due to diverse variables. If unfavorable events like the outbreak of MERS occur, the goal of attracting ’16.5 million’ tourists in 2016 may be nothing more than wishful thinking.

RE_009 Photograph=Kim Sun-ho/ The streets of Myeong-dong are filled with foreign tourists on January 2

In particular, changes in the Chinese market are attracting our attention. “As only 5% of all Chinese have passports, the tourist market has great growth potential,” said an industry insider. “Particularly Korea, Japan and Thailand, which issue visas relatively easily, are directly benefiting.” If the visa policy in China is expanded, it implies that the global tourist market is very likely to be changed as well. As the domestic tourist market is highly dependent on Chinese tourists, it is increasingly important to be prepared in this respect.

Accordingly, from the viewpoint of the tourist industry, Japanese tourists are emerging as a new alternative. The number of Japanese tourists has been gradually decreasing, but as the bilateral relationship is improving, it is forecast that the number of Japanese tourists will greatly increase this year. In addition, it is pointed out that a systematic approach to tourists from Southeast Asia where the Hallyu is spreading is necessary, and tourists visiting Korea, other than Chinese tourists, need to be diversified.

▷ The duty-free market, aiming to capture Chinese tourists who visit Korea for ‘shopping,’ is experiencing a period of disarray.

On January 1, 2016 Myeong-dong, the most popular tourist attractions in Seoul, was packed with foreign tourists. To Chinese tourists who enjoy shopping, Myeong-dong is a place they ‘must’ visit. The streets of Myeong-dong were jam-packed with foreign tourists. The main Lotte duty-free shop (Sogong store) in the vicinity is also a shopping ‘haven’ to tourists. After the end of the MERS crisis, the duty-free market recovered, but the anticipated upheaval is just around the corner. As a result, the duty-free shops, which entered into the so-called ‘Warring States Period,’ are likely to have difficulties attracting the targeted number of tourists and achieving the sales target. It can hardly be predicted whether the duty-free market, which began serious competition, will become a favorable or unfavorable factor to the entire tourist market.

JH_004 Photograph=Kim Sun-ho/ The ‘Shilla I’Park duty-free shop’ that was pre-opened on December 24, 2015.

The HDC Shilla Duty-Free Shop ‘Shilla I’Park Duty-Free Shop’ was opened on December 24, 2015, and Hanwha Galleria’s ‘Galleria Duty-Free Shop 63’ was opened on December 28, 2015. Shinsegae DF’s Shinsegae Duty-Free Shop is scheduled to be opened in Myeong-dong, the most popular tourist attraction in Korea, and the Doota Duty-Free Shop will be opened in the Doosan Tower in Dongdaemun around April or May this year. In 2016 the cutthroat competition among domestic duty-free shops began. Hana Tour’s ‘SM Duty-Free Shop’ will also be opened in Insa-dong in January.

As duty-free shops are all over Seoul, e.g. Myeong-dong, Namdaemun, Jangchung-dong, Dongdaemun, Yongsan, Yeouido and Insa-dong, the ‘competition’ for attracting key consumers, i.e. tourists, is expected to be fierce. Looking at the targeted number of tourists they want to attract this year, the number is expected to grow by 20% over 2015, and the total sales of the duty-free market are forecast to increase, but the gap in sales between duty-free shops which are good at marketing and those which are not will widen, and the sales of individual duty-free shops may sharply decline. It is forecast that as the duty-free shops must play a ‘zero-sum’ game with the limited number of tourists visiting Korea, the competition for commissions payable to travel agencies will intensify and they will have to engage in a serious war of attrition.

Also, the fact that the number of FITs (free independent travelers) who spend less than group tourists is gradually increasing is a sensitive issue to duty-free shops. It will be advantageous to those duty-free shops which are well-known overseas, and new duty-free shops must tackle this issue as well.

RE_010 Photograph=Kim Sun-ho/ The main branch of Shinsegae Department Store ready for the winter season on January 2, 2016.

In particular, the industry is paying attention to Shinsegae DF which said it hopes to expand the tourist attraction from Myeong-dong to the Namdaemun Market. Shinsegae said that it would open an ‘amazing duty-free shop’ in the main branch of Shinsegae Department Store, a prestigious name in distribution in Korea. As Shinsegae DF opens its duty-free shop, it seems that the domestic duty-free market will be sucked into the eye of the storm amid rapid changes. If the upheaval of the duty-free market was signaled in 2015, it is forecast that the industry will come under the influence of the storm in 2016 and the overall picture will reveal itself around April or May.

Meanwhile, the Ministry of Culture, Sports & Tourism and the Korea Tourism Organization are likely to concentrate their energies on achieving their goals while entertaining ‘rosy hopes’ for the tourist market in 2016, and the duty-free industry is expected to start attracting ‘big spenders’ in earnest, and undergo live-and-let-die competition to expand the tourist market and the duty-free market. Considering the nature of the tourist market which fluctuates according to diverse factors, however, it seems necessary that industry officials should cooperate with one another in preparation for these market changes.


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