SOUTH KOREA: INTRODUCTION Changing trends in South Korea


South Korea’s leading duty free operators have reported a shift that has recently taken place in beauty, as more and more Chinese customers are choosing makeup from international brands. In addition, Japanese cosmetics


brands SK-II and Shiseido are gaining in popularity among South Korean and Chinese customers. Fashion, watches and jewellery


remains the second largest category, with luxury watches and bags the most popular items.


In contrast, outbound South Korean travellers, account for about 10-12%, followed by Japanese visitors. Of course, operators are also


under pressure from the intensity of competition downtown, following the opening of four new shops in Seoul and Incheon in 2018. These include the Hyundai COEX Duty Free Shop and Shinsegae Gangnam Duty Free store. This raises the number of downtown stores in the capital to 13. While competition intensifies


downtown, Incheon International Airport is also upping its game with the introduction of the country’s very first arrivals shops. SME operators SM Duty Free


and Entas Duty Free were recently awarded five-year extendable licences to operate three shops in total (in T1 and T2), which are due to open on 31 May. Luckily for Incheon’s retail


partners, it appears to be the airport that is winning over the key international luxury brands as operators downtown – particularly SME companies with little or no experience of duty free or department store retailing – struggle to close the deal with those same popular brands. A number of high-end and


globally-recognised brands have been reluctant to open boutiques in the six new downtown stores that have opened in Seoul over the past three years, including downtown shops in department stores where the brands already have a duty paid boutique. TRBusiness understands that


MAY 2019


South Korean fashion brands appear to have gained ground too, particularly jeans and t-shirt ‘street fashion’ brands. These are enjoying heightened exposure right now in China through social media. In tobacco, high taxes continue to


ensure strong demand for cigarettes in South Korea’s airport shops, with sales of e-cigarettes also growing fast. Iqos and KT&G’s Lil currently lead the category. Premium whisky and cognac make up


the majority of liquor sales, prompting most operators to expand their super-


leading luxury brands have been erring on the side of caution, preferring to wait and see if the new downtown shops become successful before deciding to enter the store. China’s ban on group tours to


South Korea, in retaliation over the THAAD missile crisis, has also played its part in deterring some of these brands from opening new duty free shop boutiques. Interestingly, smaller, less well-


known South Korean cosmetics and fashion brands have benefitted from the situation, taking operators up on the offer to fill space in downtown shops (temporarily) while operators continue to negotiate with their high-end rivals.


Top three at $13.8bn Problems among downtown store operators could become more pronounced, as duty free executives contacted for this report say the number of shops could continue to grow in the next 18 months. This relates to rumours the government is considering approving two or three new downtown store licences for Seoul and Jeju. Most operators do not favour


additional downtown licences being issued due to the already high level of competition. This is seen in heavy discounting to attract daigou customers that has reduced profitability to dangerously low levels. However, despite the challenges


downtown, South Korea’s top three duty free operators registered combined sales totalling $13.8bn


Gimhae Airport operated by the Korea Airports Corporation.


TRBUSINESS 77 premium liquor portfolios.


The Korea Airports Corporation is seeking approval to issue a tender for arrivals DF shops at Gimpo and other airports in Korea.


in 2018, accounting for 80% of the country’s total duty free revenue last year [the same proportion as in the previous year - Ed]. Lotte Duty Free remains the


market leader, with revenue of $6.8bn recorded in 2018 [an increase of 26% over the previous year], representing 40% of South Korea’s total duty free sales value last year. The Shilla Duty Free, the country’s


second largest duty free operator, achieved total domestic revenue of $4.3bn in 2017, up 38% on the $2.5bn recorded the previous year. It also posted overseas revenue of $1bn from its Singapore Changi and Hong Kong International Airport operations. «


Most operators do not favour additional down- town licences being issued due to the already high level of competition. This is seen in heavy discounting to attract daigou customers that has reduced profitability to dangerously low levels.


TRBusiness


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