SOUTH KOREA UPDATE
S. Korea ponders ‘new normal’ as travel restrictions prevent sales restart
South Korea’s US$21 billion duty free industry is facing an uncertain future as coronavirus (Covid-19) travel restrictions continue to prevent regular traveller sales from resuming and China’s increased Hainan shopping allowance threatens to take a share of the lucrative daigou sales market. David Hayes reports.
L
eading operators were seeking an urgent extension to government support measures
introduced earlier this year to ensure the survival of South Korea’s huge downtown duty free market. Shortly before this report went to
press, they received some welcome news. The Korea Customs Service (KCS) announced in late October that it had extended temporary assistance measures permitting duty free operators to sell surplus inventory in South Korea’s domestic retail market [a temporary suspension of a KCS rule that ordinarily prevents the importation of goods designated for sale in duty free shops from entering local channels was due to expire at the end of October– Ed]. KCS also waived restrictions
governing third party exports until the end of December. Operators had been urging
the government to maintain the suspension to enable large volume Chinese daigou customer purchases to continue. Indeed, daigou customers are
providing South Korea’s operators with a lifeline during the current coronavirus crisis with travel restrictions due to Covid-19 preventing the resumption of regular international travel between South Korea, China, Japan and other Asian countries. Monthly duty free sales have
grown by about 20% in total since May, according to industry figures, as more daigou traders begin visiting Seoul again. However, these are still at least 30% below corresponding monthly figures one year ago. Duty free shop sales in August of US$1.23 billion/KRW 1.44 trillion
NOVEMBER 2020
The government has extended temporary assistance measures allowing duty free operators to sell surplus inventory in South Korea’s domestic retail market.
[source: KDFSA] represented the fourth month of gains in a row since April, when sales fell below KRW 1 trillion for the first time in four years. “South Korea’s duty free market
is completely relying on the Chinese customer market, but there are almost no regular travellers and sightseers now,” comments a duty free industry source in Seoul. “Operators are relying on shuttle
traders to generate a profit. About 99% of duty free sales are to daigou wholesalers. The big weak point is they cannot give shops much profit. “Most duty free shops are
retaining about 70% of their previous duty free sales now, so they are 30% down from 2019.” With outbound travel among
South Koreans curtailed due to the 14-day quarantine rule on arrival, duty free operators are offering larger discounts than before to attract daigou purchases. “Last year duty free shops gave
about a 40% discount to daigou customers, but now they give an over 45% discount,” says the source. “There is big competition between Lotte, Shilla and Shinsegae Duty Free.”
Lessening of restrictions Among currently suspended restrictions are KCS rules limiting the number of items that can be purchased to 49 per duty free shop visit. Duty free customers are no
longer subject to any government limitations on the quantity of goods
“Last year duty free shops gave about a 40% discount to daigou customers, but now they give an over 45% discount. There is big competition between Lotte, Shilla and Shinsegae Duty Free.”
South Korea duty free source TRBUSINESS 17
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