[FOCUS] China's 'Daigou' middlemen credited with saving S. Korea's duty-free shops

By Park Sae-jin Posted : October 26, 2017, 14:53 Updated : October 26, 2017, 14:53

[Yonhap Photo]


South Korean duty-free shop operators feel something's missing with no buzzing sound of big-spending Chinese clients who once jampacked their outlets in airports and downtown Seoul to clean out the shelves for cosmetics and other popular products.

Their business setback began after China's informal trade and economic retaliation intensified in April when US troops in South Korea brought in a Terminal High Altitude Area Defense (THAAD) system despite Beijing's strong protests. Chinese tourists shunned South Korea.

Duty-free shops have been heavily dependent on Chinese tourists. Last year, about 70 percent of income at duty-free stores run by South Korea's fifth-largest Lotte Group came from Chinese customers.  Data from the state-run Korea Tourism Organization (KTO) showed that in the first nine months of this year, South Korea received 3.19 million Chinese visitors, down 49.6 percent from a year ago.

The tourism industry remained hit hard by Beijing's travel ban, but duty-free shops were at a loss with an abnormal situation because of an increase in sales that betrayed earlier predictions by experts.

In 2016, foreign visitors purchased duty-free shop goods worth 7.6 billion US dollars. In the first nine months of this year, the accumulated amount of goods bought by foreigners at duty-free shops stood at $6.7 billion, according to data compiled by the Korea Duty Free Shops Association.

The association said monthly sales fell sharply to $665 million in March and $590 million in April. Sales showed a slight increase in May but stayed below $700 million for three more months. For unexplained reasons, duty-free shop sales rose to $885 million in August and $931 million in September.

If the current trend continues, this year's revenue is expected to exceed last year's, although duty-free shop operators led by Lotte complained about a sharp decrease in the number of foreign visitors.

"Now, the industry is a little confused. I cannot say for sure which factor caused it, but I don't think the phenomenon is attributable to peddlers as some experts say so," an official from the duty-free industry told Aju News on condition of anonymity.

In recent media reports, some experts claimed Chinese peddlers spent more money at duty-free shops, but the official said there always have been vendors but their population is rather fixed, unable to make a dramatic increase in sales at duty-free shops.

The official cited "Daigou", a new proxy-purchasing group of middlemen in China's e-commerce business, as one of the key factors. "Daigou is totally different from peddlers," he said, adding that while peddlers usually hoard popular daily necessities, Daigou middlemen come to buy jewelry, expensive cosmetics and luxury brands.

At duty-free shops and major fashion cities such as Paris, London, New York and Seoul, Daigou middlemen visit luxury boutiques due to high import tariffs at home. The Business of Fashion, a British online fashion newsgroup, reported in February last year that the Daigou industry in China is estimated to be about $12 billion.

In a 2016 survey of 5,500 Chinese consumers, conducted by the newsgroup, 35 percent bought foreign luxurious goods through Daigou, 45 percent through domestic online shopping malls and 13 percent through foreign online malls. Only 7 percent said they buy luxury brands from official shopping malls. 



 
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