SOUTH KOREA UPDATE


“IIAC must hurry to award the licenses, but Lotte, Shilla and Shinsegae have no reason to hurry – they are just waiting for IIAC to lower the tender MAG again.”


South Korea duty free source


Korea, whereas normally all duty free purchases have to be collected airside on departure at the airports. Foreign duty free shoppers are


purchased per transaction. As a result, fewer daigou customers now need to visit South Korea’s downtown stores to purchase the large volumes of duty free goods. However, customers are still


subject to purchasing guidelines specified by individual cosmetics companies and luxury brands. These limit the number of items of each product that individual customers can buy. “Before Covid-19 happened,


Chinese wholesalers had to use hundreds of Chinese travellers coming to South Korea, but now just a few people can do the same thing,” says the source. “Daigou traders now come to


South Korea and enter 14 days quarantine; then they travel back to Hong Kong.” The temporary suspension of


various other KCS regulations allows foreign visitors to collect their duty free purchases while in South


also being allowed to return their purchases to a third party and not the original retailer, another major change that assists daigou customers with the handling and consolidation of purchases in preparation to be shipped abroad from South Korea. Duty free operators process


large daigou customer orders at their warehouses near Incheon Airport. The goods are packed for shipping, handed to a forwarder and shipped to Hong Kong or a destination in China. “Another change in regulation is


that a daigou buyer in Hong Kong now can transfer payment to the duty free store here in Seoul before visiting to buy their goods,” the source notes. “All these temporary changes to


KCS’s regulations mean 99% of sales now are to daigou wholesalers.”


Challenges for luxury Looking at sales by category, luxury brands are in a different situation to the dominant beauty market. Travel restrictions in the Spring


prevented South Korea’s fashion merchandisers from visiting Europe; few orders for luxury fashion goods


are understood to have been placed as a result. At the same time, duty free shops


have faced problems with large unsold stocks of luxury goods due to the sharp decrease in South Korean and foreign customer numbers this year. Luxury fashion brands are


opposed to duty free fashion goods being sold in the domestic market due to unsold stocks accumulating in the channel. However, KCS has given duty


free operators permission to sell unsold luxury goods domestically to third party companies who then resell in China, Southeast Asia and other markets, helping duty free companies unload unsold inventory outside South Korea. Correct at the time of writing


(early November) it was understood that Incheon International Airport Corporation (IIAC) was considering direct negotiations with leading travel retailers with regards to awarding the six Terminal 1 duty free concessions that failed to attract bids during the recent third tender round. Lotte Duty Free, Shilla Duty Free


and Shinsegae Duty Free all decided not to bid in the third tender for the six T1 licences covering beauty, liquor and tobacco and fashion goods. Incheon released its initial RFP


in March as the Covid-19 crisis took hold, prompting Lotte and Shilla to withdraw their preferred bidder statuses. A second tender received insufficient bids for each of the concessions, rendering it invalid under Korean law. “IIAC extended the concessions


from August, but next January all of the concessions will finish; there is no legal right to run them after January 2021,” comments a duty free industry source in Seoul. “IIAC must hurry to award the


licenses, but Lotte, Shilla and Shinsegae have no reason to hurry, they are just waiting for IIAC to lower the tender MAG again. “Even without Covid-19 it will be


difficult to make money at Incheon Airport as Chinese people start to prefer Hainan and other places.” «


Three tenders for the Terminal 1 licences at Incheon Airport have faltered this year. 18 TRBUSINESS


For more information see the full interview on www.trbusiness.com


NOVEMBER 2020


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