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Could the Japanese fill the Chinese vacuum in South Korean duty free?

Could the Japanese come to the rescue of the beleaguered duty free and travel retail market in South Korea? New data from travel retail analyst, research and category expert, Counter Intelligence Retail, suggest this could be the nationality DF&TR retailers in the market may turn to while the Chinese stay away.

May 2017 | by Garry Stasiulevicuis, President 

The political fallout from the deployment of a US defence missile system called THAAD in South Korea has meant that Chinese tourists have pulled out of trips to South Korea –or if they are still travelling there, they are spending less in DF&TR stores.

That body blow is currently being offset by the Japanese who represent the second biggest inbound market for South Korea. According to figures from CIR Business Lounge, Japanese departing Japan to South Korea in the first two months of the year (to February) were up by +10.9% (versus growth of +18.2% in 2016). This is positive news for the South Korea market, but recent reports highlight that the Japanese too could put off their trips to the country because of “overblown Japanese media reports” about tensions on the Korean peninsula.

While the growth rate has slowed versus the same period in the previous year, it is a resilient performance nonetheless, especially in the light of March arrival numbers from the Korea Tourism Organization (see table below). They show a Japanese hike of +22.4% compared to a precipitous drop from China of -40%. 

“Taiwanese growth in March was also strong at +28.8% but in terms of sheer numbers it is really only the Japanese that can offer any counterbalance to the huge drop-off from the Chinese,” says  Garry Stasiulevicuis, President, Counter Intelligence Retail.

He adds: “However, it is worth noting, based on these KTO March figures, that Japanese and Taiwanese visitors combined now add up to almost the same number as Chinese visitors (348,990 versus 360,782) and it will be interesting to see what sort of shifts in nationality marketing take place – and for how long.” 

Japan duty free resurgent

As well as offering an alternative for South Korean DF&TR operators, the strong outbound trend from Japan offers the country’s home market DF&TR retailers good prospects for lifting sales.

CIR Business Lounge data indicate that all the top international departure airports from Japan are seeing good outbound rises (see table below) based on Japanese PAX departing Japan on scheduled international flights (Mar 16-Feb 17).

In the 12-month period ending February 2017, Tokyo Narita and Osaka Kansai showed fairly modest growth rates of +3.4% and +8.5%, but some other major gateways had high double-digit growth such as Tokyo Haneda (+17.3%), Fukuoka (+15.3%), Okinawa (+16.4%) and Chitose (+20.2%).

“All of the top 10 airports in Japan have shown rising outbound Japanese traffic numbers over the 12 months to February indicating a dynamic market that travel retailers will be eager to exploit,” says Stasiulevicuis.

In April, the yen also surged to a 2017 high against several currencies including the Korean won. It has since dropped back but further pick-ups this year should encourage more travel – and retail spending.

For further detailed breakdowns of the Japanese outbound market from CiR please contact: 

NB. PAX Source: CiR Business Lounge | Advanced Analytics Tool - Data based on Scheduled departing international passengers only. Data displayed for nationalities is based on residency through place of ticket purchase