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Gaining from South Korea’s Chinese losses

The dramatic collapse in Chinese travel to South Korea this year is sending shockwaves through the duty free and travel retail industry in the country, with all retailers including the big names like Lotte and Shilla, reeling from sales declines.

September 2017 | by Garry Stasiulevicuis, President 

Figures from Korea Tourism Organization put the Chinese arrivals decline at -46.5% in the seven months to July 2017 with numbers down to 2.53m from 4.73m in the same period last year.

The slide was a direct result of the stationing of a US missile defence system directed against North Korea called THAAD on South Korean soil. The Chinese government’s fury at this decision led to its ban on selling package tours to South Korea earlier this year.

As well as this political move, North Korea’s latest tests of long-range ballistic missile have proved provocative and further destabilised the region. Regardless of political directives, Chinese travellers are now also wary of travel to South Korea from a security perspective.

The country’s tourism loss is, however, a big gain in other parts of Asia. PRC nationals have not stopped travelling… far from it. Record numbers of Chinese are still going abroad and investment group CLSA remains bullish on Chinese tourism reaching a forecast 200 million outbound travellers by 2020.

Where to now?

CLSA’s survey of more than 400 Chinese travellers cites the two most visited destinations as Hong Kong and Macau, followed by Thailand and Japan with “arrivals to South Korea and Taiwan slowing due to political tensions”. Singapore, Indonesia, Malaysia, the Philippines and Australia are also seeing growth in popularity.

Another study from think tank, The Fung Group, says that Japan has emerged as the most popular destination, visited by 55% of surveyed tourists in the past 12 months, followed by Hong Kong (35%) and South Korea (27%).

Japan is in a good position to mop up PRC travellers as South Korea remains a safety black spot – and security is a prime travel concern. CLSA’s 2017 findings indicate that 70% of respondents put safety as the most important factor influencing destination choices, followed by travel costs and sightseeing.

According to Japan National Tourism Organization, in the seven months to July, arrivals from China have risen by +6.7% to more than 4.06 million, while arrivals from South Korea have advanced by +42.8% to 4.04 million. Apart from the safety concerns, the PRC rise has also been triggered by a general weakening of the Japanese yen against China’s Yuan in the second half of the year. The tourism boom is sure to boost Japan’s new downtown duty free businesses.

Chinese FITs gain prominence

In line with our own analysis at CiR – focused principally on the DF&TR market – there is also evidence that Chinese FITs (free independent travellers) are becoming a more important part of the mix.

The Fung study says that while group travel (35%) is still a mainstay tourism format, the majority of those surveyed travelled independently without a local guide on their most recent trip, either by buying a travel package (32%), or by making their own travel arrangements (21%).                  

FITs – typically young professionals, who are educated and affluent – are therefore the next wave of Chinese travellers who will potentially offer DF&TR operators their biggest future sales. The profile of the Chinese traveller is changing fast which is no surprise as the country itself is also transforming at a rapid pace. FITs – most of whom are also Millennials – are replacing older group travellers and are therefore a new target whose needs must be understood better.

We have already seen how the Chinese are moving away from traditional holiday and shopping destinations to places like Thailand, Vietnam and Indonesia which offer more in the way of excitement and novelty. We expect this to continue – and on an international basis as well. It means that Chinese FITs are more likely to spend less time in the big cities like London, Paris and Milan – which they may have visited before – and take time to explore country heartlands. That could be a big retail sales opportunity for regional airports.   

Digital natives

In our latest research on how to engage with these Chinese travellers in the Scandinavian market, we distilled our findings into five themes: Pre-trip planning – connecting with travellers before they arrive; Convenience – creating seamless shopping and purchasing experiences;  Differentiation – more exclusive and limited edition products; Gifting – especially for local/regional brands; and Back to basics – fine tuning the retail fundamentals.

A digital approach is essential to getting the pre-trip planning and convenience aspects right. While, not all Chinese consumers are digital natives by any stretch, going online to plan ahead is second nature to many, regardless of Baby Boomer, Generation X or Millennial stereotyping.   

The Fung study suggests that online resources such as travel websites, blogs and social media are used by 72% of Chinese travellers to plan their trips, while 98% used their smartphones abroad to keep in touch with others and to search for travel-related          information. CiR’s own studies shows a clear correlation with Fung: almost 75% of Chinese travellers plan their trips before they leave and 86% go online at the airport according to our research, so marketing in advance and during a trip represent perfect opportunities to influence shopper behaviour.

PRC nationals are also keen to pay via UnionPay whose terminals are now standard at many DF&TR retail locations. Even more convenient is mobile payment via merged social media and e-commerce apps and DF&TR operators are now implementing these: DFS Group just announced its tie-up with WeChat for pre-order and payment, while Eraman in Malaysia and Changi Airport Group have partnered with Alipay.

Achieving seamless transactions – particularly for younger FITs – is likely to pay off in greater sales. Incremental steps like these all add up to a better service for the Chinese, and this is something they value – and actively seek out.

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