SOUTH KOREA: OVERVIEW
that includes all airport, seaport and downtown shops (including on-line sales), ‘domestic duty free’ sales on Jeju Island, but not airline inflight sales. South Korean travellers’ share of
sales was $3bn, equivalent to 26% of total duty free revenue. Of total South Korean purchases, $525m or about 14% were domestic duty free purchases on Jeju Island where domestic duty free sales rose by 2.6% in 2017. Downtown stores, which register
South Korea’s fast-growing online duty free sales as well as in-store purchases, account for about 75% of total duty free sales. Online sales have grown rapidly
during the past three years and involve mainly skincare and make-up. South Korean and Chinese customers are the main online shoppers. According to leading operators,
online sales now account for 25% to 30% of their downtown revenue. Most operators expect the online sales ratio to reach around 35% to 40% by the end of this year or soon afterwards.
Chinese Daigou impact South Korea’s total downtown duty free sales rose by 28% to reach $9.8bn in 2017. Central Seoul’s flagship downtown stores saw the largest revenue growth last year. Away from Seoul however, both
Lotte Duty Free and Shinsegae Duty Free downtown stores in Busan city, which rely on South Korean
customers, recorded sales declines in 2017. Meanwhile, in the capital,
Lotte Duty Free’s COEX store and Dongwha Duty Free both registered sales declines due to a decrease in Chinese group tour customers Total airport and seaport duty
free sales of $2.4bn were almost flat in 2017, registering a 1.7% increase over the previous year as the dip in Chinese visitor numbers hit airport duty free operators’ takings. In turn, duty free profits have fallen
sharply as operators rely on new Chinese Daigou trader purchases to replace lost sales to regular mainland customers, while waiting for Beijing to lift its group tours ban. Industry sources in Seoul tell
TRBusiness that duty free shops supplying Daigou customers have to discount their retail prices by up to about 40% depending on the brands and items purchased. In addition to offering Daigou
customers their lowest member’s club discounted price, operators also pay commission to tour companies for introducing Daigou customers to their stores. Daigou customers favour mainly
skincare and colour cosmetics purchases, choosing popular international and South Korea brands that are in short supply in China. Items are purchased in bulk and
then mostly repacked in suitcases for transport to China where they are supplied as parallel imports. Aware of the trade, leading beauty
brands apply quota restrictions in allocating supplies to South Korean duty free operators. In addition, duty free shops impose limits on the number of items sold to each customer at the request of brands. Daigou cosmetics purchases
follow various routes into China, some arriving through smaller provincial airports while other purchases are supplied through Hong Kong. “Daigou take their purchases to
Despite the challenging climate, Lotte Duty Free is bullish about its World Tower prospects this year.
MAY 2018
Hong Kong for wholesalers to resell in China and Hong Kong,” says one shop source in Seoul. “After they arrive in Hong Kong they sell to a warehouse and it’s supplied to China by truck and train.
Perfumes and cosmetics remains the largest category, accounting for an estimated 50% share of sales.
“Chinese travel agents keep a warehouse in Hong Kong and employ Daigou directly. Their profit is 2% or 3% after Daigou’s plane tickets and payments. “Daigou travel from Hong Kong
to South Korea three or four times a week, some are 40 to 60 years old, others in their 20s and 30s.” Because of the large volume of
duty free goods collected at Incheon International Airport’s collection counters, special repacking rooms are provided in T1 near gate 50 and also at T2.
Downtown competition rises Meanwhile, South Korea’s highly competitive duty free market is about to become tougher this year with three new downtown duty free stores scheduled to open in Seoul. The new downtown stores due
to arrive are: Shinsegae Gangnam Duty Free, Hyundai COEX Duty Free and City Plus Duty Free Shinchon, which will open in the second half and impact the market from later this year. The new arrivals will put further
pressure on existing operators, after several new downtown operators carried out store upgrades in 2017 to differentiate their customer offer from other competitors. Profitability, meanwhile, remains
a concern for all operators, large and small, as already mentioned. «
Industry sources in Seoul tell TRBusiness that duty free shops supplying Daigou customers have to discount their retail prices by up to 40% depending on the brands and items purchased.
TRBusiness TRBUSINESS 85
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