South Korean duty-free shops are still smarting from China's retaliation against Seoul over the deployment of a US defense shield here with their profitability worsening despite rising sales, industry sources said Sunday.
In mid-March, China banned the sale of group tours to Seoul in retaliation against the installation of a Terminal High Altitude Area Defense (THAAD) battery in southeastern South Korea, which Beijing sees as a security threat. The move has dealt a harsh blow to local duty-free shops, as Chinese tourists were their main customers.
Industry watchers predicted local duty-free shops' third-quarter sales to climb at a double-digit rate from a year ago, but warned they would suffer a tumble in operating income in the wake of China's retaliation."The combined top line of domestic duty-free shops is expected to rise 17 percent on-year for the July-September period," said Sung Joon-won, a researcher at Shinhan Investment Corp. "Chinese peddlers have been driving their sales growth despite a plunge in Chinese tourist arrivals."
The number of Chinese visitors to South Korea has tumbled more than 60 percent on-year each month since March, the analyst said.
However, duty-free shops' operating profits for the third quarter are projected to sink at a double-digit pace due to increased marketing and other expenses.
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