Wanted: New marketing strategyLately, the global market is enjoying a Chinese tourist boom. According to Chinese authorities, 98.2 million tourists traveled abroad, twice the population of Korea. They dominate economies at tourist destinations with their big spending. Six million came to Korea last year, and Korean shopping centers and tourist attractions are thriving thanks to the Chinese visitors.
As Chinese tourists start to patronize duty-free shops, the sluggish retail industry suddenly gains vitality. The Korean government decided to add three in-town duty-free shops to expand retail infrastructure for the Chinese visitors. Both large and midsize businesses are competing to win the bids to open a downtown duty-free shop. Seven large conglomerates have announced their bids and named the sites they are considering. Working-level officials say owners are pressuring them to win the bid at any cost. Japan is expanding airport duty-free shops, and Isetan Mitsukoshi Holdings plans to open a duty-free shop in Ginza, Tokyo. Other companies also plan to get into the business. Chinese authorities and companies, too, are opening duty-free shopping centers in order to encourage Chinese shoppers to spend money at home.
The heated competition suggests duty-free shops are a goose laying golden eggs. But the distribution industry is as worried as it is hopeful.
“We have no choice but to enter the duty-free business because domestic markets like department stores and discount shops are so sluggish and duty-free shopping is the only growth area,” said one retail executive.
With fierce competition in the duty-free industry, and because of small profit margins and significant inventory burdens, Chinese authorities are investing in duty-free shops while the weak yen gives Japanese companies a competitive edge.
But a more serious concern is the changing trend among Chinese tourists. First of all, their spending has drastically decreased. During the Spring Festival holiday this year, each Chinese visitor spent an average of 560,000 won ($511) shopping, compared to 900,000 won in 2013 and 680,000 won in 2014. Korean duty-free shops have cut back on luxury brands in favor of cosmetics, infant formula and children’s merchandise. The Chinese tourists mostly shop for affordable cosmetics that Korean celebrities endorse or children’s products.
However, it is not that the general taste of the Chinese tourists shifted to low-end products. Last year, Chinese tourists spent $81 billion buying luxury goods abroad, 35 percent of the total spent on luxury goods sales. In Japan, they spent over 1 trillion won during the 10-day Spring Festival holiday. Duty-free shops were sold out, and downtown department stores had no merchandise left to display as Chinese tourists bought up electric rice cookers and bidets. Chinese media published an article criticizing tourists who buy televisions, refrigerators and even rice and bring them back in small shipping containers. Chinese people think Japanese rice is clean and order it online.
The Chinese tourists who buy containers full of luxury goods in Japan get facial mask sheets selling at 10,000 won for a package of 10.
Why are they buying expensive things in Japan and cheap goods in Korea? Businesses are concerned that budget tour packages are associated with an image of cheap products. The tourists who want to enjoy luxurious travel choose Japan or Europe over Korea. Before expanding the shopping infrastructure, the authorities need to revamp the tourism infrastructure.
Chinese people rave over the rice cookers made in Japan, which many Koreans find unattractive. It may be the influence of “the glory of the past.” Japan has succeeded in marketing its brands and images. Korea also wants to emphasize a premium image, but it is only associated with a limited number of items. The growth in cosmetics and fashion sales is largely boosted by pop stars and celebrities.
Instead of making efforts to promote the national image, brand and product competitiveness, we may have been satisfied with “luck” from the Korean Wave. Industries need to reconsider selling affordable goods in expanded duty-free shops. Aside from cosmetics and fashion, they are many other goods that Korea can sell. To attract big spending Chinese shoppers, we need a comprehensive national marketing strategy.
JoongAng Ilbo, May 20, page 30
*The author is an editorial writer of the JoongAng Ilbo.
by Yang Sunny