Group Travel from China: Sharp Recovery Expected for Chinese Visitors
The relevant industries are excited with the news that the Chinese government is allowing group tours to South Korea for the first time in over six years. According to Jeju Island and the tourism industry, 53 cruise ships departing from Shanghai applied to dock in Jeju Island just one day after the Chinese government announced full permission for group tourism on August 10th. While South Korea witnessed a rapid recovery in foreign tourism this year, the inflow from China remained restricted, owing to the Chinese government’s tour limitations. This led to a subdued recovery in crucial sectors like South Korean duty-free stores and cosmetics. From January to June 2023, the total number of arrivals in South Korea recorded 4.43 million, 447% growth year-on-year but China accounted for only 550,000 which is way below pre-pandemic levels. Considering that the monthly average number of Chinese visitors were 500,000 before the pandemic in 2019, we can expect the number of Chinese visitors to increase more than sixfold from the current level due to resumption of group tourism.
Sharp Sales Recovery for the Duty-Free Shops and Cosmetic Companies?
After the pandemic, the businesses that suffered the most due to the decrease in Chinese visitors were duty-free shops, cosmetics, and the tourism industries. South Korean duty-free shops’ sales decreased by -27.7% year-on-year, and major cosmetics companies like AmorePacific and LG H&H also recorded negative growth in their first-half sales. Expectations for the recovery of these companies are growing again with the recovery of Chinese tourists. One important consideration is that Korean duty-free shops’ sales were more significantly affected by purchases from large Chinese wholesalers known as ‘Daigou’ than by Chinese group tourists. Since this year, duty-free shops have sharply reduced commissions provided to ‘Daigou’ and shifted to profit-focused management. The industry needs to watch how the previously criticized commission payment policy will be implemented with the resumption of group tourism.
Steep Growth Possibility for Mid-to-Low Priced Cosmetics and Beauty Device Companies
With the resumption of group travel from China, traditional tourist areas like Jeju and Myeongdong are expected to quickly regain vitality. Sales from road shops, which have been sluggish for a long time, especially in major tourist areas of Jeju and Seoul, are expected to bounce back. The revival of beauty tourism — plastic surgery and skincare treatments — often referred to as ‘K-beauty tour’, is also anticipated. Although the increase in the number of visitors will positively impact all related industries, sales of mid-to-low priced cosmetics, which have been sluggish for an extended period, are expected to recover more robustly. Recent share price is reflecting these expectations as mid-small cap. cosmetics & medical beauty companies have mostly hit their 52-weeks high last week.
The sales performance for cosmetics and medical beauty companies can be tracked real-time by Aicel’s consumer transaction data — contact customer@aiceltech.com for any inquiries.
