COVID-19 made the biggest impact on Korea Duty Free Industry in the 1st Quarter of 2020. COVID-19 crisis, which has spread to Korea and around the world, has had an immediate impact on the travel and Duty Free industry. Before the wide spread of COVID-19, the Korean duty-free industry recorded KRW 2,024.8 billion in January 2020, an increase of 18.3% compared to KRW 1,711.6 billion in January 2019. This was a decrease of 11.38% compared to KRW 2,284.8 billion in last December.

It is a seasonal routine to have the January sales lower than the December sales of the previous year due to the seasonal factors and the relatively low number of Chinese tourists in January. Simply considering the sales result of January 2020, it is difficult to say that it is entirely because of COVID-19 impact.

Normally, B2B sales surge during the 1st and the 2nd week of January, before the Chinese New Year when the festive holidays come in late January. When B2B transactions started to be active in Korea since 2016, the volume of transactions surged before the Chinese New Year’s day, followed by visits of group tourists during the Chinese New Year period, and the B2B trading was returned again from two weeks after the Chinese New Year holiday. This year, because of COVID-19 which has outbroken in China since December last year, has attracted more B2B transactions before the Lunar New Year holiday than the other years.

From January 28th, when the Chinese New Year holidays ended, most Korean duty-free shops were in a hurry to install the thermal imaging cameras in the lobby to measure the visitor’s body temperature. However, it was not enough to prevent the rapidly spreading contagious disease after the first confirmed case occurred on January 20th. In the national level, South Korea immediately mobilized its capacity to prevent the spread of COVID-19 since then.

▲ Infographic = Hae Young Yuk

In early February, when COVID-19 began to spread, the impact was not fully predicted. Therefore, only few downtown duty-free shops went into the short closing when the confirmed patient visited their shops 7 During this period, the shops re-opened immediately after the quarantine and disinfection of the entire building. The measures were based on the recommendation and cooperation of the government and CDC. In contrast to the situation in Korea, the mainland China postponed the New Year’s Day holidays on January 26th until February 2nd, starting the regional blockades and banning travels in and abroad.

This was the beginning of the great turmoil in the Chinese customer segment, a major customer of Korean duty-free. For the first time, the Chinese government delayed the Lunar New Year holiday to February 2nd, which extended by a week. Since then, China once again postponed it to February 10th with some regional differences. In addition to the blockade of the rail transportation in Wuhan, the movement across each metropolitan city was stopped. In particular, the production facilities where multiple people gather, and even daily lives went into the lock-down. China stopped public transportations and controlled the flow of logistics.
 

The direct impact on Korea duty-free has occurred around this period. The B2B transaction, which has continued since 2016, has virtually come to a full stop. On February 28th, the Korean government released the relevant data by announcing the ‘Comprehensive Measures against COVID-19’ jointly with the related ministries (including the Ministry of Strategy and Finance). According to the data, Chinese tourists fell by 37.3% from the 4th week of January (Jan. 27th 2020. ~ Jan. 30th 2020). In the 2nd week of February (Jan. 10th 2020 ~ Jan. 16th 2020), 81.2% was dropped. It is almost a plunge. This fall is deemed as a result of the direct impact by the Chinese government’s ban on group tourism at home and abroad. 

The total sales of duty-free in Korea fell by 14.3% compared to the same period last year in the 3rd week of January (Jan. 20th 2020 ~ Jan. 25th 2020). The 4th week of January fell by 23.4%, and the 1st week of February fell to the deepest by 42%. This trend continued throughout February, decreasing by 38.4% in the 2nd week of February and 40.4% in the 3rd week of February. In January 2020, gross sales increased compared to the previous year, but the falling compared to the previous month can only be explained by the impact of COVID-19.

▲ Infographic = Hae Young Yuk

As the Chinese B2B business has become active in Korea duty-free, the sales trends that have appeared since 2016 are : A) Sales increased sharply before the Chinese New Year Holidays. This is because goods purchased from Korean duty-free is to be consumed in China during the Chinese New Year. Therefore, sales in January, before the Chinese New Year, has always shown a significant increase compared to that of the previous year. In January this year, due to COVID-19 outbreak, which began to spread in China in December 2019 and early January 2020, more B2B transactions were concentrated in early January than the previous year.

B) during the Chinese New Year holidays, duty-free sales are maintained mainly by tourists visiting Korea. In this period, the price of air tickets between Korea and China has skyrocketed, so B2B visits to Korea are postponed until after the Chinese New Year holidays. Korean duty-free shops have also been carrying out promotions tailored to the outbound Korean travelers and inbound Chinese tourists during the Chinse New Year holidays. At the end of this period, the B2B transactions using the cheaper flight ticket are re-activated. 

C) one of the characteristics of 2020 is that sales in the 4th week of January and the 1st week of February had shown a record-breaking fall. Duty-free managers analyzed it as “the decline of the amount of B2B online transactions which was canceled because of China’s ban on overseas travel”. This is because Chinese authorities actively restrained Chinese nationals from making overseas travel to prevent the spread of COVID-19, therefore they could not visit Korea and the online pre-orders had to be canceled. The amount of cancellation due to exchange rate fluctuations also had an impact. 

Currently, Korea duty-free is facing a very serious sales crisis a lot worse than SARS and MERS in the past. During SARS and MERS, Korea’s duty-free sales and marketing activities were comparably smaller and simpler than those in 2020. At that time, the Japanese and the Korean customers were the main target market. Since 2014, the core customer segment has turned into Chinese. While the mainland China is locked down, it is difficult for Korea duty-free to overcome the current crisis, even though various methods are being adopted by the government and the private sector in order to survive.

[저작권자ⓒ (주)티알앤디에프뉴스. 무단전재-재배포 금지]