According to GlobalData’s pre-crisis forecast, the Asia-Pacific (APAC) duty-free sales are forecast to reach US$43.4bn in 2020, backed by high growth in countries such as China, India and South Korea. However, the recent coronavirus scare has dramatically altered the dynamics of the APAC duty-free market.
While it is difficult to forecast the full impact that coronavirus (Covid-2019) will have on the APAC duty-free market, it is certain that in the short term, sales in China and other markets in the region such as South Korea, Macao, Hong Kong, Thailand, Taiwan and Japan will be significantly hit in Q1 due to the high level of Chinese tourism in these locations.
Over the full course of 2020, GlobalData expects the APAC duty-free sales to reach US$35.2bn, which is 19.1% lower than the original (pre-coronavirus) forecast, (over 92.5% of the expected US$9bn reduction in global duty-free sales) due to the size of the duty-free market in South Korea and China. It is expected that US$5.5bn will be lost from South Korea’s 2020 forecast and US$1.5bn from China.
Suresh Sunkara, Retail Analyst at GlobalData, comments: “Other APAC countries such as Japan, Singapore, Hong Kong and Thailand with considerable increase in the number of new cases over the past few days are estimated to worsen the impact. The forecasts may change further during the course of time if the virus spread is prolonged to H2 2020 or if it spreads to other key duty-free markets in the region including India, Malaysia and Australia, which are currently not significantly affected by the spread.”
Key airports in the APAC region, including all domestic and international airports in China, South Korea’s Incheon Airport, Singapore’s Changi Airport, Hong Kong International Airport, Haneda Airport and Narita Airport in Tokyo, are hit. Many downtowns, ports and cross-border duty-free stores in the region have temporarily closed.
The crisis will force major duty-free operators in the region such as Shilla, Lotte, Shinsegae and China Duty-free Group to re-evaluate strategies and identify other consumer groups and markets to help offset a weakening in revenue. Luxury brands and cosmetics operators in major duty-free markets will be the biggest losers given their reliance on high spending Chinese consumers, highlighting how over-exposed the duty-free channel is to one key purchaser group.
Authorities have come up with measures to control the losses to retailers. For instance, concessionaires at Singapore Changi Airport will receive rental assistance — 50% rebate on their monthly basic rental charges for six months effective 1 February 2020.
Sunkara concludes: “The Tokyo Olympics should also aid the recovery in the APAC over the summer – on the provision that the crisis has calmed down and travel restrictions have been relaxed. If not, the market growth will take an even more serious hit this year.”