The seemingly neverending South Korea travel ban saga has taken another turn as it was revealed that duty-free sales broke a new record in 2017—despite the country being subject to a Chinese travel ban for a large part of the year. Combined sales at the 48 licensed duty-free retailers in the country reached 14.5 trillion won (US$13.6 billion), up 17.9 percent from the 12.3 trillion won (US$11.5 billion) brought in last year.

According to data released by the Korea Tourism Board, the travel ban had a dramatic effect on Chinese arrivals, with 3.8 million Chinese tourists visiting the countries in the first 11 months of 2017, down by 49.1 percent compared to the same period in 2016. In 2017, Chinese visitors accounted for 31.4 percent of all foreign arrivals in South Korea, down from 47.4 percent in 2016. As a result, total arrivals in South Korea took a dive by 23.3 percent.

Chinese arrivals were down by almost half in 2017 compared to the year before

With the Chinese travel ban and the subsequent drop in tourist arrivals to South Korea, why were duty-free sales reach record heights? Surprisingly, the uptick in duty-free sales was attributed in part to Chinese travelers—specifically so-called daigou (代购) travelers who travel abroad to purchase products for resale back in China. According to one customs official quoted by Yonhap, “despite the plunge in Chinese tourist arrivals, small-scale Chinese traders have been driving duty-free sales growth.”

The unlikely reason behind the sales record: Chinese travelers

As Jing Travel previously reported, troubled South Korean duty-free retailers were bolstered by increasing activity from Chinese daigou travelers, but it’s fair to say that few expected the growing activity of such travelers to turn the Chinese travel ban on its head and help South Korea break a duty-free record.

And while South Korean tourism authorities can perhaps count the duty-free sales record as a boost to morale for an otherwise struggling tourism industry, things aren’t quite as easy as saying that China’s ban on group tours in South Korea proved ineffective—even in limiting duty-free operators’ profits. Unfortunately for South Korean duty-free retailers, and the South Korean tourism industry as a whole, daigou travelers are significantly less profitable than regular leisure or business travelers. For duty-free retailers, commissions are often part of the equation when dealing with daigou shoppers, which in turn eats into profits—even if total sales revenue climbs. For the overall South Korean tourism industry, daigou shoppers prove a very limited source of other tourism revenues, e.g., in accommodation, tours, and dining. For these travelers, it’s all about earning arbitrage from buying and selling South Korean goods, and little about actually enjoying South Korea as a tourism destination.

Unfortunately, record sales doesn’t mean record profits

Even if the duty-free sales record doesn’t necessarily mean too much in practice for the South Korean tourism industry, it does serve as a reminder that significant demand for South Korean products remains in the Chinese market in spite of a very harsh official line against South Korea and South Korean companies such as Lotte.

Until China finally lifts its de-facto travel ban on group tours to South Korea, the country can take some solace in the fact that, as proven by daigou duty-free sales, there’s a lot of currently untapped demand for South Korea and South Korean products in the Chinese market. When the floodgates do eventually open, South Korean may be in for another record-breaking year, and perhaps a more profitable one at that.

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Shopping & Duty-Free