Mainland Chinese Tourists Riding the 'Korean Wave'
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Strategy / Korea 24 August 2012 Seoul Searching Mainland Chinese tourists riding the 'Korean wave' • Chinese tourists are making a real splash in Korea • The mix is changing but Chinese visitors are shopping at all price points, with a particular focus on Korea cosmetics • AmorePacific, LGH&H and Hyundai Department Store stand to benefit, as do aviation, hotel, gaming and other retail players business hotel, a sign of the current shopping lists, followed by apparel shortage of rooms in Seoul. and then packaged food. Our on-the-ground experience is Changing mix of visitors from backed by Korea Tourism Mainland China Chang H. Lee Organization statistics showing a Tourists accounted for 57.1% of (82) 2 787 9177 [email protected] sustained increase in the number of visitors from Mainland China in 2011, visitors from Mainland China as a up from 37.1% in 2003. Within that group, the number of tourists proportion of total visitors to Korea. Summary travelling independently, rather than Overseas visitors to Korea in a tour group, is on the rise, while Continuing Daiwa’s series on the 50% rising impact regionally of outbound females now outnumber male visitors. 40% tourism from Mainland China, we Last but not least, average spending take an on-the-ground look at the 30% by tourists from Mainland China spending habits of Chinese tourists 20% continues to rise, notably on shopping. in Korea and highlight likely 10% Stocks to watch beneficiaries at the company level. 0% Inside, we highlight several 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Japan China ASEAN On-the-ground experience potential beneficiaries of this Source: Korea Tourism Organization, Daiwa emerging theme, including ODM As part of our research for this edition of Seoul Searching, we headed for and OEM cosmetics producers, hotel Indeed, with visa requirements on chains, gaming companies, airlines, Myungdong and Dongdaemun, the tourists from Mainland China having most popular destinations for people and department store operators. been relaxed recently, and growth in looking to buy low-end to medium- the number of tourists from China last range Korean-made cosmetics and Given that Mainland Chinese tourists year far exceeding the figure for cite shopping as a major reason for fashion items. visitors from Japan (18.4% vs 8.8% visiting Korea, with cosmetics a big YoY), it is likely to be just a matter of draw, we think the following stocks in On our visits to two duty-free time before the proportion of tourists shopping (DFS) stores in downtown Daiwa’s Korea coverage universe offer from Mainland China overtakes that front-line exposure to the spending Seoul over the weekend, we were from Japan. surprised at the sheer number of power of tourists from Mainland China: AmorePacific (090430 KS, tourists, particularly in Myungdong. Why, where, what and how? Most were from China, with visitors W1,128,000, Outperform [2]) What is bringing Mainland tourists and LGH&H (051900 KS, from Japan accounting for a much to Korea? A survey conducted by smaller proportion. Still, both groups W604,000, Hold [3]). We also flag Korea’s Ministry of Culture, Sports, Hyundai Department Store far outnumbered local residents. and Tourism suggests that visitors (069960 KS, W138,500, Buy [1]), from China come for, in order of which has a strong presence in the We saw many group tour buses their preference: 1) shopping, 2) parked in the vicinity of the DSFs, Gangnam district, to which an food, and 3) sightseeing. Their increasing number of tourists head for and most had in their front windows preferred shopping venues are: 1) signs featuring Chinese characters. cosmetic surgery. Airport DSF, 2) Myungdong, and 3) In Dongdaemun, meanwhile, we Dongdaemun. The survey results visited the construction site for a See pages 7-9 for our full list of suggest that cosmetics top their potential beneficiaries. Important disclosures, including any required research certifications, are provided on the last three pages of this report. Seoul Searching 24 August 2012 other overseas tourists at the recent London Olympics. It went on to say that the British had been surprised to see Chinese shoppers clearing the shelves of luxury stores in London, and that shops had added separate payment counters solely for Chinese customers. The power of Mainland In Hong Kong, Christie Chien noted in her report that 36.3% of 2011 Hong Kong retail sales by value came tourists, Korea style from Mainland Chinese tourists. Assuming the amount of per-capita spending by Mainland tourists remains at Korea is one of the beneficiaries of the the level for 2011, of US$842.2, she estimates that by 2015 the total retail sales value generated by Mainland increasing number of outbound tours Chinese tourists will be equivalent to 80% of Hong from China. Kong’s total retail sales for 2011. Travel: something every Korea is benefitting South Korea is also benefitting from the boom in Mainland Chinese dreams of overseas travel by Mainland Chinese, due to its proximity, the high-quality shopping experience, and More recently, a survey by China Central Television Hanryu – the so-called Korean Wave. (CCTV) in 2011 revealed this had changed to: 1) a computer, 2) to travel, and 3) a car. The number of Mainland Chinese inbound visitors to Korea has increased at a CAGR of 15.8% over the past According to China’s National Bureau of Statistics, the 11 years. The rise was accelerated by the Korea number of Mainland Chinese travelling overseas Government easing visa restrictions for Mainland increased at a CAGR of 18.8% between 2000 and 2011. Chinese progressively. The Korea Tourism The total number of outbound tourists rose from 57.4m Organization (KTO), a government entity, expecting for 2010 to about 70m for 2011, an increase 22% YoY the double-digit growth in the number of visitors from increase despite the ongoing global economic crisis. China to continue for 2012. Among the 70m travelling in 2011, 85% visited places in Asia. Christie Chien, a member of Daiwa’s economics Foreign inbound visitors from Japan, China, and ASEAN team, believes the current boom in outbound travel is (m) only just starting in China – a country with a rapidly 4.0 growing middle and upper class (see The power of 3.5 Mainland tourists, published on 16 July 2012). 3.0 2.5 Although the annual number of outbound trips in 2.0 China is the highest of any country, the departure-to- 1.5 population (DTP) ratio is lower than elsewhere, at 4.1% 1.0 and 5.2% for 2010 and 2011 (US: 18.7%, Japan: 13.4%, 0.5 Korea 26.2%, and South Africa: 10.8%). This alone 0.0 suggests that the current boom is just the start. 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Japan China ASEAN Mainland Chinese tourists have changed Source: Korea Tourism Organization, Daiwa the world tourism industry The rise in overseas travel by Mainland Chinese has accelerated over the past few years on the back of the easing of travel restrictions by the PRC Government. This, combined with the consumption power of tourists from China, has changed the world tourism industry. It is already well-known that Mainland Chinese are the biggest spenders (in terms of average per traveller) in the US and Europe. In Australia, they have surpassed the British as the country’s most valuable tourists in terms of what they spend. A recent China Daily report claimed that Mainland Chinese tourists outspent all - 2 - Seoul Searching 24 August 2012 Proportion of visitors from Japan, China, and ASEAN 50% Characteristics of Mainland Chinese tourists 40% According to the Internationale Tourismus-Börse 30% Berlin’s (ITB) World Travel Trends Report 2011/12 20% published during ITB Berlin, the world’s largest tourism trade fair, the profile of Mainland Chinese 10% tourists has been getting younger with an increasing number of young professionals with high income levels. 0% In addition, it claimed that more Mainland Chinese 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 tourists were starting to prefer the experience of Japan China ASEAN travelling as an individual rather than with a group – a Source: Korea Tourism Organization, Daiwa move away from price to an experience-based trip. The report noted that these travellers sought a ‘China- In 2000, the number of Mainland Chinese visitors was ready’ service at their destinations and were willing to only about 443,000 (8.3% of total inbound visitors) spend a lot on shopping. The study also found that and the number of Japanese inbound visitors was these people travelled frequently and preferred to about 2.5m (46.5%). For 2011, the number of Mainland travel to short-haul rather than long-haul destinations. Chinese visitors increased by 18.4% YoY to 2.2m (22.3% of the total) with the number of Japanese rising As a result, there is a rapidly increasing number of by 8.8% YoY to 3.3m visitors (33.6%). If the current foreign independent travellers (FIT) among outbound pace were to be maintained, which seems highly likely Mainland China tourists, seeking short trips for to us at this point, the number of Mainland Chinese shopping or weekend getaways. As the trips are brief, tourists would overtake the number of Japanese within FIT tend to visit places within 2-3 hours’ flying time, a year or two, as Korea recently relaxed the visa such as Hong Kong, Macau, Taiwan, Japan, and South requirements for Mainland Chinese further (see the Korea. There is also a growing number of individual appendix for details).