Travel Retail Korea
A very dynamic market : Forecasted revenue in 2020 is 21,125 billion USD with an average annual double-digit growth of 20% over past 10 years.
It is duty-free channel where K-beauty runs with dreams of becoming global brand. Beauty category, the unbeatable core business in Travel Retail channel mainly in Asia, is leading this strategic distribution while increasing sales and brand awareness over the decade. Duty free channel is THE quick and efficient way to reach Chinese consumers as well as a growing number of Southeast Asian tourists.
A very dynamic market : Forecasted revenue in 2020 is 25 trillion won (=21,125 billion USD, rate 1 USD = 1,183 KW) business with an average annual growth of 20% over past 10 years.
The Korean duty-free market is estimated at 25 trillion won (=21,125 billion USD, rate 1 USD = 1,183 KW), up 32% year-on-year in 2019. The average annual growth rate for the last 10 years from 2008 to 2018 is 19.7%. It is the onblt channel that achieves such big growth year on year while other Korean distribution channels (such as hypermarkets, department stores, and convenience stores) are showing single-digit growth. This is why the duty free channel is called the “Golden Egg Goose” In Korea.
Korean Travel Retail Beauty business accounts for 65% of the total Korean Travel Retail market, 40% of the sales of Global Travel Retail in cosmetics, and 60% of Travel Retail in cosmetics in Asia. Korean Travel Retail channel has become the main channel for distributing premium cosmetics especially for Chinese consumers.
Cosmeticin Travel Retail
And more precisely, these Golden eggs come from premium cosmetics. This is because Korean duty free channel has become a core one for distributing premium cosmetics in China. The Chinese Daigu (代工 in Chinese) plays the middle role. In 2018, 73% of the 19 trillion won in Korean duty-free shops were purchased by Chinese. Among these, Chinese Daigu sales are estimated at more than 80%. They changed the Travel Retail ecosystem from B2C to B2B. The Travel Retail industry in Korea had to pay commissions ranging from 10% to up to 40% to those middle men.
In the process, the rich, richer and the poor, poorer phenomenon has been intensified. According to the Korea Customs Service, large retailers accounted for 94% of the Korean duty-free industry, while small and medium-sized retailers accounted for only 3.8%. Lotte, Silla, and Shinsegae, the Big 3 have achieved even higher sales. And margin while small and middle sized ones struggled (their net operational result gets worse ; -4.9% in 2016, -7.4% in 2017, and -2.5% in 2018). Hanwha and Doosan decided to withdraw their duty-free business. And a small Travel retailer, Top City Duty Free also returned its licence.
To support the increasing needs, the Korean government allowed establishment of duty-free shops at arrivals gates in Incheon Airport since May 2019.
The Korean Travel Retail channel is expected to increase its size again this year thanks to increasing demand on premium cosmetics by the Chinese shoppers.
According to the 2020 cosmetics market forecast announced by Korea Investment & Securities, The Korean Travel Retail Beauty business accounts for 65% of the total Korean Travel Retail market, 40% of the sales of Global Travel Retail in cosmetics, and 60% of Travel Retail in cosmetics in Asia. Korean Travel Retail channel has become the main channel for distributing premium cosmetics especially for Chinese consumers.
An official of Korea Investment & Securities said, “In spite of various risks such as the regulation of Korean duty-free goods in China, the performance of the Korean duty-free market in 2020 is expected to be sound. The instability of the Hong Kong market, which is a major shopping area for Chinese people, the strong yen and the weak won are also positive factors. ”
Amore Pacific, LG H&H and Shinsegae International
Brands such as Amore Pacific‘s Sulwhasoo, Hera, LG H & H‘s SUM, O HUI and Hu, Shinsegae International‘s Vidi Vici have strengthened their lineup.
In particular, LG H & H posted the highest growth rate in China with its premium cosmetics brands sales reaching +90%. Recently, CNP is also gaining popularity in Korean Travel Retail business, increasing its global competitiveness.
A researcher at Hana Financial Investment says “L’Oréal, Estee Lauder, and Shiseido have well balanced three to four premium brands. Korean groups should balance their offer while proposing different premium brands with different concepts. The performance of Korean Travel Retail is important. It is time to strategically grow a new or second brand.”
Come back, Chinese Tourists!
In 2019, Korean Travel Retailers’ sales come from cosmetics, bags, watches & jewelry and fragrances. For the Beauty category, Korean brands lead the sales but from 2017, European and Japanese cosmetic brands have been continuously increasing their sales. It seems Chinese shoppers are shifting to larger numbers of brand. The major shoppers in Korean Travel Retail business are Chinese, Koreans, Japaneses, Americans, and Taiwaneses.
In 2016, the influence of China’s group tourists started to decrease because of China’s Thaad retribution. This “emptiness” has been quickly filled by the Chinese Daigu to supply Chinese Consumers who have been restricted to travel in South Korea. In 2020, the Daigu’s purchase will again be huge. It is also expected that cosmetic sales by the “normal” Chinese tourists will recover when the Chinese government decide to put an end on the travel restriction to Korea. President Xi Jinping’s visit to South Korea in the first half of this year has been on the rise since the Korea-China-Japan summit held on December 23, 2019. The Republic of Korea-China relations are improving and thus the level of industry’ expectation is growing. The Korean Duty Free industry is paying close attention on whether Chinese tourists will return massively.
The government also rolled up his arms. Korea will attract 20 million foreign tourists this year. More Duty Free shops at the Arrival gates will be open at major airports across the country. Starting March 2020, Tobacco sales will be allowed at those arrival gates.
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