South Korea’s “great retreat”, can China take the lead?

Editor’s note: This article is from the micro-channel public number “Wen Brigade” (ID: wenlvpai), Author: Guo Hongyun.

How can Chinese tourists buy it? According to data from the United Nations World Tourism Organization (UNWTO), Chinese tourists spent 277.3 billion U.S. dollars abroad in 2018, ranking first in the world; another forecast shows that Chinese tourists’ overseas spending will exceed Greece’s GDP in 2019.

However, with the arrival of the epidemic, the pace of overseas travel and consumption of Chinese tourists came to an abrupt halt. From the beginning of 2020 to the beginning of 2021, China’s domestic outbound travel has been suspended to prevent and control the epidemic. It is not only the travel agency industry that is affected. The tax-free industry that was booming in the past is also facing difficulties due to the impact of the epidemic and the absence of Chinese tourists. The withdrawal of Korea’s two largest duty-free shops, Lotte and Silla, from Incheon International Airport is the most intuitive manifestation of this predicament.

01. South Korea’s duty-free industry finally can’t stand it?

Before talking about the withdrawal of the two major duty-free shops in South Korea from the airport, first share a set of data. According to Yonhap News Agency, the number of visitors to duty-free shops in South Korea has plummeted since the epidemic. In January this year, only 343,983 visitors were ushered in, which is one-tenth of the number of visitors at the beginning of the epidemic in January 2020 (3,87,445).

The “bad effect” brought about by the cliff-like decline is that South Korea’s two major tax-free companies have to start shrinking their businesses. According to a report from CCTV Finance, with the expiration of operations at the Incheon International T1 terminal on February 28, the two largest duty-free shops in South Korea, Lotte and Shilla, will withdraw from the airport and will not renew their contracts.

Related information shows that the T1 terminal is the largest terminal of Incheon Airport. Among them, Lotte Duty Free Shop is in the area of ​​alcohol and cigarettes, and the Shilla Duty Free Shop includes cosmetics and perfume, tobacco and alcohol, clothing and sundries. The two duty-free shops cover an area of ​​more than 4,000 square meters, accounting for 30% of the total area of ​​the entire duty-free area.

Source: CCTV Finance

The Korean Duty Free Shops Association has stated that due to the impact of the new crown pneumonia epidemic, the passenger flow of duty-free shops in South Korea has dropped sharply. The annual passenger flow was 10.669 million, which was only 22% of the passenger flow in 2019. Total sales amounted to 15.5051 trillion won (approximately RMB 90 billion), a decrease of 37.7% year-on-year. This is also the first negative growth in the sales of duty-free shops in South Korea in 11 years. Among them, the sales of the duty-free shop at Incheon Airport plummeted by 95%, and 5 of the original duty-free shop employees were00 people will face unemployment.

It is worth noting that although South Korea’s duty-free industry has been hit hard, the largest consumer group supporting its current income is still Chinese consumers. Although the demand for epidemic prevention and control cannot go abroad, Daigou has become a domestic consumer to buy Korean duty-free products. The main channel. Statistics show that in 2020, 94% of the consumption of duty-free products in Korea will come from foreign consumers, among which Chinese consumption will account for 93% of the total sales of duty-free shops.

For this, an insider said in an interview with Wenlv that duty-free shops have withdrawn from the airport. South Korea is not the only case affected by the epidemic on a global scale. This illustrates the bleakness of the international flight market, such as the top five in Europe. The airport has lost 250 million passengers in passenger throughput in 2020. Frankfurt saw the biggest drop, reaching 73.4%. As for the traditional departure tax exemption, especially the airport tax exemption, there will be no business if there are no passengers leaving the country.

According to the “Economist” report, last year’s global duty-free store sales fell by nearly two-thirds from the 2019 basis. In 2019, the global duty-free shop sales were around US$86 billion, and it is expected that the market will not be able to return to this level before 2025.

For global tax-free companies, it is of course also severely affected. Apart from Lotte and Shilla, Dufry, the Swiss company ranked No. 1 for the past six consecutive years, has also plummeted its revenue to 1.587 billion Swiss francs in the first half of 2020, a drop of 62. %. According to the Moodie Davitt Report, CDFG has surpassed Dufry of Switzerland to become the world’s largest duty-free retailer. Looking back at 2020, it can be seen that the Hainan outlying island duty-free market has been mentioned the most. This market is also the most popular duty-free market in the world.

02. Duty-free industry at home and abroad has experienced two days of “ice and fire”

Take the Spring Festival holiday as an example. According to statistics released by Haikou Customs, during the Spring Festival of 2021, Haikou Customs supervised Hainan’s sales of 1.14 million duty-free goods on outlying islands, an increase of 225% compared to last year’s Spring Festival; the sales amount was 997 million yuan. Compared with last year’s Spring Festival, an increase of 261%.

And this is just a microcosm of the thriving development of Hainan’s outlying islands’ duty-free development. Since July 2020, Hainan’s outlying island duty-free policy has been adjusted, including increasing the duty-free shopping limit on outlying islands, from 5,000 yuan per person to 100,000 yuan per person, abolishing the 8,000 yuan tax exemption limit for a single product, and increasing the category of duty-free products from 38 to45 kinds, greatly reducing the restriction on the quantity of single purchase, etc., providing a good policy environment for the domestic duty-free industry to “turn over”.

According to official data, the total sales of duty-free shops in Hainan Province’s outlying islands in 2020 will exceed 32 billion yuan. Especially after the implementation of the new Hainan outlying island’s duty-free policy on July 1, 2020, sales have increased significantly, from July 1, 2020 to On December 31, the average daily sales of duty-free shops in Hainan outlying islands exceeded 120 million yuan, a year-on-year increase of more than two times.

Such a huge room for growth has also driven the rapid recovery and growth of domestic duty-free enterprises. From the perspective of China CDF Group, which has become the world’s number one, according to its latest performance bulletin, during the reporting period, the company achieved total operating income of 52.618 billion yuan, an increase of 8.24% over the same period of the previous year, and achieved operating profit of 9.694 billion yuan. , An increase of 31.78% over the same period last year, achieving a net profit of 6.117 billion yuan attributable to shareholders of listed companies, an increase of 32.07% over the same period last year. This is mainly due to the return of overseas consumer demand during the epidemic and the implementation of the new tax exemption policy for outlying islands in Hainan.

Screenshot of CDFG’s 2020 annual report performance report

In the Hainan market, CDFG also occupies an absolute dominant position. Data from CDFG’s sales system shows that from January 1 to December 14, 2020, CDFG’s Haikou Meilan Airport Duty Free Shop , Haikou Riyue Square Duty Free Shop, Qionghai Boao City Duty Free Shop and Sanya Haitang Bay Duty Free Shopping Center 4 outlying island duty-free shops total sales (including tax) more than 30 billion yuan, doubled year-on-year growth.

Such performance is hard to see among listed tourism companies under the haze of the epidemic. According to the information disclosed by China’s CDF, it has already established airports, aircraft, borders, foreign ship supplies, passenger stations, railway stations, diplomatic personnel, and cruise ships in 33 provinces, cities, and autonomous regions (including Hong Kong and Macau) and Cambodia. With more than 200 duty-free shops of nine major types in the city, it has become the duty-free operator with the most complete types of duty-free shops in the world and the largest number of retail outlets in a single country. It has the largest duty-free commercial complex in the world.

Under such circumstances, China CDF is still accelerating its expansion. In 2020, it will acquire 51% of Hainan’s equity, to achieve its leading position in Hainan. In 2021, it will increase its foreign investment on February 22 and February 23, respectively. CDFG Jinan International Airport Duty Free Co., Ltd. and Yantai CDF Duty Free Co., Ltd. both hold 51% of the shares.According to industry analysis, this cooperation may provide CDFG with more space for the future development of duty-free shops in Shandong Airport.

At present, there are a total of eight domestic companies with tax-exempt qualifications, namely CDF, Japan Tax Free Bank (acquired by CDF), HaiDian (has been injected into China International Travel Service), Zhuma, Shenzhen Free, and China Express , Zhongqiao and Wangfujing Group, which only got the license last year. Companies that are still applying are numerous, including Zhongxin Tourism, Ewushang A, Lingnan Holdings, Eurasian Group, BBK, Greenland Group, Gree Real Estate and other companies that have disclosed plans or are applying for licenses. Players who are eager for the domestic trillion-dollar tax-free “cake” have already begun gearing up and eager to try.

Source: CDFG official website

03. Can the global duty-free pattern return to the past after the epidemic?

Under the background that the international duty-free market has been hit hard and the domestic duty-free business is booming, there are voices saying that such a trend will not be normal. The impact of the epidemic will subside in the future. After the outbound travel market has recovered, they are now keen to buy, buy and buy in the country. “Consumers will still flow out to overseas markets, and then the global duty-free industry pattern may undergo a new round of reshuffle.

According to the World Health Organization statistics report, in the week of February 27th, the number of new confirmed cases and deaths in the world have all declined significantly. The number of newly diagnosed patients has shown a downward trend for the seventh consecutive week, and the number of new deaths has shown a downward trend for the fifth consecutive week. According to global data, the epidemic has eased, and the recovery of outbound travel may be getting closer. However, according to the predictions of industry players and experts, the resumption of outbound travel will have to wait until the end of 2021 at the earliest. If the situation is not optimistic, it may be until early 2022.

This also means that in the next year, the domestic duty-free market will still face environmental opportunities for continuous growth. Mr. Gao, who is engaged in overseas duty-free related business, said in an interview with Wenlv that there is no fundamental difference between the duty-free industry and the department store industry, but there are some differences in the way of sales and purchase channels. Most of the enthusiasm for duty-free shops comes from the price. Appeal.

In the past year of the epidemic, the domestic duty-free marketing and promotion activities have been increasing, which is one of the important reasons that sparked the public’s enthusiasm for duty-free products. One aspect of not being able to go abroad, but many consumers can find Daigou or Haitao Online shopping channels, the current tax-free corporate product prices represented by CDFG, are also competitive in the international market.

However, under the premise that outbound travel continues to be suspended, the tax-free sales channels in 2021 will be dominated by domestic. It can be seen that many large outbound agencies have layouts. In the future, when more players enter the game, apart from price competition In addition, shopping services and the abundance of product categories will be even greater challenges. Because in addition to cosmetics and luxury goods, there is actually a large amount of original overseas shopping demand that needs to be released, so more products and better services will be new issues before everyone.

(Some pictures in the article are from Photograph.com.)