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Business trends

South Korean boycott hammers sales of Japanese consumer goods

Beer, clothes and cars hit hard, but video game makers Nintendo and Sony shine

TOKYO -- Japanese brands from beer to clothes were walloped by a boycott by South Korean consumers last year -- but tech names stood out for their resilience, according to data assessing the effects.

The boycott was sparked a year ago when Japan's government imposed curbs on exports of chipmaking materials needed by South Korean semiconductor producers such as Samsung Electronics and SK Hynix. Although Tokyo says the restriction was prompted by concerns over South Korea's own export restrictions, some see the move as related to South Korean court rulings that allow assets of Japanese companies to be seized and used to compensate Korean victims of World War II-era forced labor.

Tokyo's action sparked a strong response by South Korean consumers, who began to shun Japanese products -- in some cases with severe financial effects.

According to Seoul-based research company CEO Score, the combined operating profits of 31 Japanese consumer companies in their South Korean businesses plunged 71.3% to 145.9 billion won ($121 million) in 2019, compared with the previous year.

The companies' combined revenue fell by 6.9% to 7.9 trillion won during the same period.

The biggest impact has been on companies with products more easily substituted -- even if those brands had begun to inspire consumer loyalty.

"Until now, politics and consumption of daily necessities were different, but our beer that had been the bestselling imported beer in South Korea, for eight consecutive years until 2018, has dramatically decreased," Asahi Group Holdings CEO Akiyoshi Koji told the Nikkei Asian Review in December.

Lotte Asahi, where products include sales of Japan's Asahi beer in South Korea, was worst hit among the companies assessed. Its sales fell 50.1% to 62.3 billion won in 2019 while the local unit recorded 19.8 billion won of operating losses, according to CEO Score.

Oryoon Lee, an analyst at Euromonitor International, told Nikkei that low sales at convenience stores had a big impact.

"Convenience stores account for the largest share of beer sales in South Korea," Lee said. "Leading convenience store chains like CU and Mini Stop returned or cleared their Japanese beer inventories due to low sales."

He said the boycott of Japanese beer was still gaining steam. According to Euromonitor, China's Tsingtao has now overtaken Asahi as the top selling imported beer, with Heineken climbing from third to second.

Exports of Japanese beer to South Korea declined 49.2% to 4 billion yen in 2019 from the previous year, government trade data shows.

Although the South Korean market made up around 55% of Japan's beer exports in 2019, the impact of losing their nearest overseas market is limited for Japanese brewers. Japan exported 116 million liters of beer in 2018, equivalent to only 2.3% of total domestic beer production, according to the National Tax Agency and Japan's Brewers Association.

Nevertheless, South Korea was still an attractive market because of shrinking demand for beer at home.

Asahi's rivals Kirin Holdings and Sapporo Holdings are also struggling in South Korea and have not restarted marketing campaigns including TV commercials that were suspended last year.

"Some retailers do not accept Japanese products," said a spokesperson at Sapporo Holdings, adding that there is no sign of them returning to sell Sapporo beer.

Japanese food company Ajinomoto, meanwhile, is also experiencing hard times. Sales at its Korea unit dropped 34.2% to 21 billion won in 2019, according to CEO Score.

"South Korean consumers can easily switch to local or other foreign products for food and drinks and Japanese players could continue to see a tough business environment," Takayasu Yuichi, a professor at Daito Bunka University's Faculty of Economics, told Nikkei.

Meanwhile, Lion, the Japanese maker of toiletries, has also refrained from running a marketing campaign in South Korea due to the boycott. Promotional activities for Japanese products were not welcomed at some Korean retailers, a Lion spokesperson said. In 2019, Lion reported that sales in Northeast Asia -- which also includes China and Taiwan -- dropped 9.5% from the year earlier to 31.4 billion yen ($297 million), due to worsening relations between Japan and South Korea as well as the impact of protests in Hong Kong.

However Lion's hand soap sales recovered in South Korea in the January-to-March period this year, and the company has been increasing production at its South Korea plants due to demand stemming from the coronavirus outbreak.

Apparel is another hard-hit sector. "Clothing is visible . . . Even if people want to wear it, consumers are shunning it due to the anti-Japan mood," Takayasu said.

Fast Retailing, owner of the Uniqlo brand, is sitll feeling the impact of tension between Japan and South Korea, chief financial officer Takeshi Okazaki told reporters in July. Uniqlo's operating loss in South Korea exceeded the company's target for the March-May quarter as a result of the boycott and the coronavirus pandemic. Okazaki said he expected further falls in sales in the June-August period.

In May Fast Retailing said it would close all three GU stores, a Uniqlo sister brand, in South Korea. Two of those stores opened after the boycott started.

A Fast Retailing spokesperson said: "South Korea is an important market for us. We wish to continue doing our best to provide products and services that will meet the daily needs of South Korean customers."

Meanwhile Ryohin Keikaku, operator of home goods chain Muji, announced that operating profit fell 15% in its East Asian business for the year ended in February 2020, partly due to worsening relations between Japan and South Korea.

Japanese automakers have also seen business hurt by the boycott. According to the Korea Automobile Importers & Distributors Association, the number of Japanese cars sold in South Korea dropped 18.9% to 36,661 vehicles in 2019. Nissan Motor in May decided to withdraw from the market.

Some Japanese tech companies, however, have fended off the trend and are actually enjoying a boom in sales driven by video game demand. Nintendo's Korea unit saw its sales jump 36.6% to 230.6 billion won with operating profit soaring 68.4% to 12.6 billion won. Sony Korea's sales rose 19.5% to 1.4 trillion won while operating profit spiked 35.6% to 18.5 billion won, according to CEO Score.

"While South Korea has major food or car companies, there is no big gaming industry [with companies] like Sony and Nintendo," said Daito Bunka University's Takayasu. "It is hard to find a substitute."

He said that there are no indications the boycott will stop and no signs that the relationship between Japan and South Korea will improve under their respective current leaders, Prime Minister Shinzo Abe and President Moon Jae-in.

Additional reporting by Kim Jaewon in Seoul and Akane Okutsu and Eri Sugiura in Tokyo

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