Duty-Free, Hotels, Casinos, Growing Expectations for the Return of 'Big Spenders' in Sales

[Impact and Outlook of China's Reopening] Distribution Industry Changes Felt

Sales Decline Offset by Normalization of Duty-Free and Fees
Hotels, Increase in Guests... Regional Occupancy Rates Also Changing
Casinos, Expect Recovery of Chinese 'Big-Spender' Customers

Editor's NoteAmid concerns over a global economic slowdown, China's reopening has emerged as a major variable for a global economic rebound. While some view China's pursuit of qualitative growth as a reason not to overestimate the economic impact, there are also many expectations that increased Chinese consumption and the resulting economic circulation will positively influence the global economy. The benefits that our economy can gain from China's reopening are expected to vary across industries such as semiconductors, aviation, and distribution. However, there are also observations that efforts to exclude China from the global supply chain due to US-China tensions could limit the economic effects of the reopening.

As China fully accelerates its reopening (economic resumption) this year, domestic travel-related sectors such as duty-free shops, hotels, and casinos are also growing optimistic. These sectors, which were directly hit by COVID-19, showed signs of recovery last year as overseas travelers partially returned during the endemic phase, and with the expected full-scale influx of Chinese tourists this year, they have begun preparations to accelerate performance growth. These industries expect to feel significant changes after the Chinese government included South Korea among the countries allowed for overseas group tours.

The duty-free area of Incheon Airport Terminal 1 is bustling with travelers.
Yeongjongdo - Photo by Jinhyung Kang aymsdream@

According to the Korea Duty Free Association on the 15th, domestic duty-free sales in January recorded 797.4 billion won, down 30% compared to the same period last year. Compared to the previous month (1.344 trillion won), it plunged 41%. In particular, foreigner sales amounted to 596.4 billion won, only 49.5% of the previous month’s 1.1805 trillion won. With air routes blocked due to COVID-19, domestic duty-free operators increasingly relied on Chinese peddlers (ttaigong) to maintain sales, intensifying competition over commission fees to attract them. This year, as the industry braces for worsening performance, efforts to normalize commissions and improve business structures have led to sales declines. The industry expects that the increase in Chinese tourists entering Korea due to China’s reopening will partially offset the sales decline caused by commission normalization. According to the Bank of Korea, the average spending per Chinese visitor to Korea was $1,689 (2019 basis), higher than that of the US ($1,106) and Japan ($675).

However, to secure Chinese customers steadily in the future, the industry widely agrees that whether the China National Duty Free Group (CDFG) will be named the final operator in the ongoing bidding for the Incheon International Airport duty-free business rights will be a key factor. There are concerns that CDFG, backed by strong capital, will enter the domestic market and gradually absorb Chinese customers, the main clientele of domestic duty-free businesses, from airport stores to downtown stores, thereby dominating market share. A duty-free industry official said, "As efforts to normalize commission fees continue this year, we are trying to replace the sales decline from ttaigong with demand from individual Chinese tourists who have returned due to reopening, as well as domestic and foreign demand during the endemic phase, by reorganizing memberships, strengthening VIP benefits, and launching various promotions. The entry and market share expansion of Chinese operators would nullify these efforts to improve the sales structure of the duty-free market, so the industry’s attention is focused on this situation."

The hotel industry is also eagerly anticipating the full-scale expansion of domestic tourism this year due to China’s reopening. Major domestic hotels, which partially recovered foreign demand last year during the endemic phase, saw room occupancy rates rise to as high as 80% by the end of the year, but the recovery among Asian foreign guests was slow due to continued Chinese lockdown policies. The Grand Intercontinental Seoul Parnas and Intercontinental Seoul COEX, operated by Parnas Hotel, recorded occupancy rates of 83.9% and 85.3% respectively in Q4 last year, doubling compared to the same period the previous year. Despite this recovery, the proportion of Asian guests during the same period was only 5.5% and 11.8%, far below the pre-COVID-19 levels of 15.0% and 33.5% in 2019. Hotel officials forecast, "Although the proportion of Asian guests, including Chinese, was not high even before, we expect changes in regional occupancy rates with the full-scale reopening of China this year."

Near Myeongdong, the 'tourism hotspot,' Lotte Hotel Seoul has also seen an increase in Chinese guests since the end of last year. In response to the growing influx of Chinese tourists, Lotte Hotel Seoul has launched packages that include popular Korean menus favored by foreign tourists to experience K-food, as well as packages featuring ‘Gung Experience’ benefits to enjoy Korean culture. With the activation of Chinese online travel agency channels, nationality-targeted promotions aimed at the Chinese-speaking market are also being actively pursued. Hotel Shilla & Resort, which improved its performance last year with sales of 479.9 billion won and operating profit of 22.2 billion won, also expects further performance improvements this year with the recovery of Chinese tourists. In Southeast Asia, the recovery of Chinese travelers has already led to hotel rate increases. Traveloka, the leading travel booking platform in Southeast Asia, recently reported that average hotel rates in the region have risen more than 10% since last year due to the recovery of Chinese tourists. Hotel rates in Bangkok, a popular destination for Chinese tourists, have increased by more than 70%, and Singapore has seen increases of over 40%.

The domestic casino industry is also expecting the return of Chinese 'big-spending customers' this year. Major casino operators, which ended years of losses and achieved significant performance improvements last year, aim to accelerate performance gains riding on the return of Chinese visitors. Casino sales for the first two months of this year were 92.799 billion won for Paradise and 68.858 billion won for GKL, increases of 164% and 315.7% respectively compared to the same period last year. It is forecasted that sales recovery will accelerate further with the influx of Chinese group tourists this year. Lotte Tour Development said, "With air routes gradually reopening from Japan, Southeast Asia, China, and Hong Kong, expectations for the performance of foreigner-only casinos are high this year," adding, "We are fully prepared in hotels and casinos for the influx of Chinese group tourists." According to the Bank of Korea, 1.96 million Chinese visitors are expected to visit Korea this year due to the effects of China’s reopening.

This content was produced with the assistance of AI translation services.