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‘Korean Chaos’ Worries the Fashion Industry

SEOUL, South Korea — “The last four or five months have been complete chaos,” admits Jung Kuho, executive director of Seoul Fashion Week. “Everyone is so concerned with politics and the economy that they don’t want to spend their money. You don’t buy luxury goods when there’s this much uncertainty.”

Seoul is home to one of the most important luxury goods markets in the world, an entertainment industry that dominates Asian culture, beauty brands with global reach and a fashion week that sits firmly on the international calendar. But as editors, buyers and street style stars gather for Seoul Fashion Week, the collections this season will be overshadowed by serious political and economic upheaval.

In October, a major corruption scandal in South Korea led to public outcry and widespread street protests which resulted in the recent impeachment of the country’s president Park Geun-hye. Now, in the wake of counter-protests and other domestic instability, a diplomatic crisis with China has emerged. One result of these crises is that related security concerns are deterring both local and foreign shoppers.

According to Bain & Company, sales of luxury goods in Seoul reached $7.6 billion last year. To put that into perspective, it means that luxury sales in the South Korean capital alone are not far off those for the entire Middle East region (at $8.7 billion). Clearly there is a lot at stake.

But last month, Global Blue reported that in January alone, travel retail sales in Seoul declined by an alarming 19 percent year-on-year and by 15 percent year-on-year for January and February combined. Earlier this month, shares of companies trading in cosmetics and travel dropped sharply in Seoul and, in January, the Baidu Index reported a 25 percent decline in growth for Korean beauty brands in China.

Between a rock and a hard place

At the beginning of March, the first pieces of a US-built missile defence system designed to ward off a threat from North Korea arrived at the Osan Air Base in South Korea. It is called the Terminal High Altitude Area Defense system (Thaad) and China has been particularly vocal in its opposition to it. The reason for this appears to be related to Thaad’s tracking devices, which have the potential to follow China’s missile systems and would give the United States an advantage in any potential conflict.

Since the official launch of the programme, the Chinese government has retaliated to what it sees as a military threat by putting economic pressure on Korean firms. Dozens of supermarkets owned by the Lotte luxury department store group have been shuttered across China on the pretext of fire safety; Chinese visitors have been stopped from visiting South Korea in groups; K-Pop bands have been restricted from airing on Chinese television; licences for South Korean video games have been frozen; and even imports of 19 Korean cosmetics products have been refused on ambiguous-sounding quality-control issues.

“The temperature that is felt within China can only be measured by those within the region,” says Inhae Yeo, the director of Oikonomos Fashion Consulting, “But here on the Korean side, there are constant media reports about it and on the Chinese government banning large groups of tourists travelling to Korea.”

China has used these tactics to turn the popularity of Korean products into a method to spark anti-Korea sentiment. The Hallyu wave of Korean culture has been flooding China since 2010, helping to make everything from Korean shoes and lipstick to musicians and actors popular. But now, because of the restrictions on Korean imports in China, the media and ordinary Chinese citizens are being compelled to take a stand against Korean products in the name of patriotism.

Luxury sales in the South Korean capital alone are not far off those for the entire Middle East region.

This is proving problematic for Seoul as China is South Korea’s largest trading partner, with exports to the country worth $142 billion in 2014, and cultural products hitting a record $5.3 billion in sales the same year. So understandably, the Korean fashion and beauty industries have become increasingly reliant on both sales in China and the constant influx of Chinese tourists who fly to Seoul primarily to shop for Korean products and international luxury brands.

“At the present, a wide range of Korean industries — not just beauty and fashion — have started to suffer from this strong Chinese national action,” says Julia Juyeon Kang, the editor-in-chief of Elle Korea. “Experts are saying that whether it continues or not depends on our new next government, which can negotiate between China and US.”

Seoul Fashion Week’s Jung agrees: “I don’t think the numbers will pick up until May when we have an election and hopefully then we will get back on the right track,” he says.

Domestic instability upsets retail

Compounding upon the dramatic drop in their largest customer-base, fa

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