SEOUL, Oct. 16 (Korea Bizwire) — South Korean duty-free shops are still smarting from China’s retaliation against Seoul over the deployment of a U.S. defense shield here with their profitability worsening despite rising sales, industry sources said Sunday.
In mid-March, China banned the sale of group tours to Seoul in retaliation against the installation of a Terminal High Altitude Area Defense (THAAD) battery in southeastern South Korea, which Beijing sees as a security threat. The move has dealt a harsh blow to local duty-free shops, as Chinese tourists were their main customers.
Industry watchers predicted local duty-free shops’ third-quarter sales to climb at a double-digit rate from a year ago, but warned they would suffer a tumble in operating income in the wake of China’s retaliation.
“The combined top line of domestic duty-free shops is expected to rise 17 percent on-year for the July-September period,” said Sung Joon-won, a researcher at Shinhan Investment Corp. “Chinese peddlers have been driving their sales growth despite a plunge in Chinese tourist arrivals.”
The number of Chinese visitors to South Korea has tumbled more than 60 percent on-year each month since March, the analyst said.
However, duty-free shops’ operating profits for the third quarter are projected to sink at a double-digit pace due to increased marketing and other expenses.
The gloomy third-quarter outlook comes on top of local duty-free retailers’ abysmal performance in the first half of this year.
Industry leader Lotte Duty Free saw its sales fall 6.6 percent on-year to 2.6 trillion won (US$2.3 billion) during the January-June period, with its operating income nose-diving 97 percent to 7.4 billion won. The company posted an operating income of 37.2 billion won in the first quarter, but it plummeted to an operating loss of 29.8 billion won in the second quarter.