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Retailers cautiously optimistic of China thaw

Oct. 31, 2017 - 17:27 By Won Ho-jung
Retailers are cautiously optimistic about the possibility of rising sales as relations between Korea and China show signs of reconciliation.

On Tuesday, the Korean and Chinese foreign ministries issued a joint statement saying the two countries “agreed to expeditiously bring exchanges and cooperation in all areas back onto a normal track,” following a meeting between Korean security official Nam Gwan-pyo and China‘s assistant foreign minister Kong Xuanyou.

The official statement came after a spokesperson for the Chinese Foreign Ministry made reconciliatory remarks at a regular press conference Monday, saying that China hoped Korea would “bring the China-ROK (South Korea) relations back to the track of steady and sound development at an early date.”

Retailers are cautiously optimistic about thawing relations between Korea and China. Pictured is the Lotte Duty Free downtown store in Sogong-dong, Seoul. (Yonhap)

“We are monitoring the situation carefully, and of course we’re hoping for a turnaround very soon,” said an official with a Korean cosmetics firm. “But since this year‘s falling sales were due to a political situation, we are cautious about setting sales goals at this point.”

The retail industry, particularly the duty-free sector as well as sectors such as cosmetics that had relied heavily on Chinese consumers, had taken a hard hit in sales this year as intergovernmental tensions over Korea’s decision to install an American anti-missile system here led to negative consumer sentiment.

Apparent retaliatory measures against Korean businesses by the Chinese government, including an unofficial travel ban and sweeping inspections on Korean companies’ businesses in China, had led to significant losses.

A particular target was retail giant Lotte Group, which eventually decided to seek a buyer for its Lotte Mart business in China.

“It is true that Lotte has suffered difficult losses, but we have always believed that relations with China will improve,” the company said through a statement Tuesday. “We hope that the agreement between the two countries will lead to more Korean businesses including Lotte resuming activities in China.”

The group said that it would continue the process of selling its Lotte Mart businesses in China despite recent developments because the process was already in progress. Lotte has confirmed it has already received several offers for the supermarket chain and hoped to “make progress by the end of the year.”

The duty-free industry is set to see sales rebound if Chinese tourist groups return to Korea, especially in its downtown of duty-free stores that had served as cash cows to make up for heavy rent at airport duty-free branches. 

However, the optimism was muted, with operators becoming warier of a heavy reliance on profit from Chinese consumers.

“I think this year’s events has led many companies to realize that the previous reliance on Chinese consumers was extremely unhealthy,” said an official with one duty-free operator. 

“The efforts this year to attract tourist shoppers from other regions were not only an effort to prop up sales but also an exploration of the future direction of duty-free marketing. The duty-free industry is likely to become more measured in the way it targets its marketing, to cast a wider net.”

By Won Ho-jung (hjwon@heraldcorp.com)