Chinese shoppers in South Korea shun luxury for local brands

Chinese tourists at a Lotte duty free shop in central Seoul on Feb 2.
Chinese tourists at a Lotte duty free shop in central Seoul on Feb 2. PHOTO: REUTERS

SEOUL (REUTERS) - Chinese visitors to South Korea are buying less from global luxury mainstays like Louis Vuitton and Chanel in favour of cheaper homegrown brands, as young, independent travellers make up a bigger share of tourists.

Lured by the "Korean Wave" of culture exports, from soap operas and K-pop music to food and fashion, price-conscious younger Chinese visitors are seeking a more authentic and less expensive shopping experience.

South Korea trails only Thailand as an overseas destination for Chinese travellers, whose heavy retail spending has helped make South Korea the world's largest duty free shopping market.

The emphasis on value will put further pressure on global luxury retailers already grappling with slowing sales in China after years of skyrocketing growth, as a government crackdown on graft and lavish spending bites.

"You can buy those big brands everywhere, and it is actually cheaper to buy those brands in other countries compared to the prices in South Korea," said 21-year-old Zhu Xin, who was shopping at the Stylenanda store in Hongdae, a Seoul neighbourhood popular with young adults. "Now that we are here, we should buy local brands," she said.

Average prices on best-selling items from global luxury brands in South Korea are cheaper than they are in mainland China, but still cost more than in Europe, Singapore and Dubai, according to HSBC data.

At downtown Seoul duty free shops run by Hotel Lotte's Lotte Duty Free and the Samsung Group's Hotel Shilla , LG Household & Healthcare's Whoo and Amorepacific's Sulwhasoo cosmetics were the top-selling brands in 2015, overtaking Louis Vuitton, Chanel and Richemont's Cartier, store data shows.

"This doesn't necessarily imply that luxury retailers have to launch cheaper stuff but it does necessarily imply that they have to be more relevant at every price point," said Mr Erwan Rambourg, an analyst at HSBC in Hong Kong.

The number of Chinese tourists to South Korea dipped 2.3 per cent last year to about 6 million due to the deadly Middle East Respiratory Syndrome (Mers) outbreak. However, brokerage CLSA says Chinese inbound traffic growth rebounded from September and should jump by 28 per cent this year. The South Korean government expects a record 8 million Chinese visitors this year.

- NEW GENERATION -

Chinese tourists to South Korea are getting younger: the share of those in their 20s and 30s rose to 46.1 per cent last year, from 40.9 per cent in 2013, according to the government-run Korea Culture and Tourism Institute.

While older Chinese tourists typically travel in groups where they are ferried between shops catering to them, Chinese millennials tend to be better-informed about what they want, travel independently and spend less on shopping.

"I use my mobile phone to research what products to buy in South Korea," said 20-year-old Chinese tourist Liu Yuting. "Many Chinese girls like South Korean products, because most of them are cheap and cute."

At Lotte Department Stores, a chain owned by Lotte Shopping Co Ltd, average spending per Chinese visitor fell to 500,000 won (S$588) last year from 900,000 won in 2013, although the surge in overall visitors made up the difference, an official with the chain said.

"Whereas past generations blindly purchased luxury goods, the younger generations have a more price-conscious consumption pattern," KB Investment & Securities analyst Yang Ji-hye said.