Another casualty of Mers: South Korea's duty free shop sales

[SINGAPORE] Lotte Duty Free, South Korea's largest operator of duty-free shops, expects revenue to decline this month as the spread of Middle East respiratory syndrome damps visitor arrivals in the country.

Sales may have declined about 10 per cent so far this month at the company's three outlets in Seoul, and could worsen as the number of visitors from China drops, Lotte Duty Free said in an e-mailed statement. In addition, some Chinese tourists are cutting short their trips, it said.

Large numbers of overseas visitors are cancelling trips to South Korea as Mers has killed nine people there and the number of confirmed cases rose to 108. Most of the 54,400 tourists who have cancelled travel plans are from China, according to the Korea Tourism Organization.

"June revenue doesn't look good," Lotte Duty Free said. "Our outlets aren't as full as they used to be and there are more customers wearings masks."

Revenue from Chinese tourists accounts for about 70 per cent of the total at the company's two biggest outlets in Seoul, the store operator said. Lotte Duty Free is a subsidiary of Hotel Lotte Co, which is 8.8 per cent owned by Lotte Shopping Co.

Concerns about Mers were hitting South Korean tourism- related shares hard on Wednesday. Korean Airlines Co was down 4.5 per cent at 37,950 Korean won as of 2:29 pm in Seoul, while other airlines, hotels, travel agencies and casino and duty-free operators also were declining. South Korea's benchmark Kospi index was down 0.6 per cent at 2,052.69 Korean won as of 2:29 pm.

Duty-free operators aren't the only ones seeing business suffer from Mers: Tour agencies also are facing cancellations from overseas visitors.

"It's going to be a bad month not just for the duty free operators but also tour agents and other retailers," said Kim Seung Churl, an analyst at Meritz Securities Co in Seoul. "It couldn't have come at a worse time with the peak summer season about to start."

Seoul's Incheon International Airport holds the world's largest duty-free zone by revenue. Mr Kim said it could be overtaken this year by Dubai International Airport because of the drop in visitors to South Korea.

Hana Tour Service Inc, the country's largest travel agency, said about 40 per cent of the 9,000 tourists from China and Hong Kong that planned to visit had cancelled this month. The number of cancellations for July is still small, the company said in an e-mailed response.

Fewer visitors from Japan and other countries had cancelled, Hana Tour said.

"Tourists from China and Hong Kong seem to be more cautious about traveling because of SARS," Hana Tour said, referring to a deadly outbreak of Severe Acute Respiratory Syndrome in 2002-2003. "They still remember how it was then, so they're being very careful."

About 4.6 million people visited South Korea in the first four months of the year, up 12 per cent from a year earlier, according to the tourism organization. The largest number - 2.1 million - came from China, followed by 655,553 from Japan and 216,753 from Taiwan.

BLOOMBERG