[THE INVESTOR] South Korean duty-free stores may be the first to be hit by the backlash from Korea’s decision to deploy an advanced US anti-missile system.

Although Beijing has not yet made any official move -- having expressed its opposition to the deployment of Terminal High Altitude Area Defense system -- the signs are not very positive. 

The number of Chinese tourists who have booked their trips through tour agencies that schedule a visit to Lotte Duty Free Store, Seoul, in September during Zhong Gui Jie -- one of the three major Chinese holidays -- has fallen 20 percent from the same period last year, according to industry sources.

Being a big holiday, bookings are normally made a month in advance.

The duty-free industry has been posting steady growth this year, having come out of the aftermath of Middle East respiratory syndrome outbreak last summer that led to over 20 percent dip in sales on-year.

The direct impact of China’s reaction to THAAD deployment is yet to be detected: July sales of Lotte, the leading duty-free chain, surged 85 percent on-year; Shilla is still going strong; and newly opened duty-free stores such as Hanwha’s Galleria 64 and Doosan are settling quite well, according to the industry.

The number of inbound tourists rose to more than 1.84 million, a leap from 688,000 in July 2015.

The political and military decision, however, is casting a shadow on the rebound. The duty-free industry has braced itself for the outcome that could, some worry, be even more serious than that of MERS. 

“What scares us most is when sanctions are actually imposed (by Chinese government),” said a duty-free store official who wished not to be named. “There is a growing concern in the industry that its impact could be worse than MERS. It can be the worst crisis ever,” he added.

Faced with decrease in actual numbers of scheduled visits, they might not be too far off. Chinese customers account for 40 percent of the duty-free sales, and for some chains, up to 80 percent.

If the situation prolongs “it would not only be an issue for the duty-free industry, but for the country’s tourism industry as a whole,” said another industry source who acknowledged that his company is keeping a close watch.

Some Chinese tourists are actually cancelling their visits to Korea after the announcement of THAAD deployment. A total of 300 notified that they will not participate in a festival held in Daegu recently. Up to 3,000 soccer fans who were to support the team for the World Cup preliminary match between Korea and China to be held here on Sept. 1 canceled their visits.

“It is a political issue and even though the Chinese government has not officially banned tourism or trade, the sentiment against South Korea can grow and have a negative effect on Korean culture and products in the long term,” said another industry source.

By Hwang You-mee (glamazon@heraldcorp.com)