Korean duty-free shops strive to reduce reliance on China

An almost empty duty-free shop in Seoul on September 29. (Yonhap)

Korean duty-free shops, hard hit by prolonged COVID-19 lockdowns in China, are looking to reduce their reliance on Chinese sales, turning to alternative markets like Southeast Asia.

Before the pandemic, China’s deep-pocketed tourists and resellers were their main sources of income, which accounted for more than 80% of their sales.

With international travel resuming around the world, local retailers, especially the top two Lotte and Shinsegae, had pinned high hopes on the potential return of Chinese travelers to make up for their huge pandemic losses.

Still, there appear to be few signs of recovery as the Chinese government still maintains strict travel restrictions.

Having already experienced several disruptions in China, duty-free business operators are looking for breakthroughs.

Lotte Duty Free, the largest duty-free shopping operator by sales, is working to boost sales at duty-free shops in downtown Singapore, Vietnam and other countries that are showing a gradual resumption of international travel .

“Before the coronavirus pandemic, Chinese travelers accounted for the bulk of the Singapore branch’s sales. But now, with increasing numbers of transiting and departing passengers, we believe the city has significantly reduced its reliance on Chinese sales,” an official from Lotte Duty Free said.

This month, Lotte is set to open its first duty-free shop in downtown Da Nang, Vietnam. It plans to open the second branch in the capital Hanoi by the first half of next year.

The official said a number of tourists with high purchasing power come from Southeast Asia, such as Malaysia, Indonesia and Thailand. “Vietnam will be at the forefront of catering to the region’s growing demand for luxury, fashion, beauty and alcohol.”

Additionally, the Vietnamese government is promoting an aggressive travel policy with the aim of attracting more than 5 million foreign visitors this year. In August, 1.4 million travelers visited the country, according to data from Vietnam’s General Statistics Office.

Building on “hallyu,” or the global Korean entertainment boom, duty-free shops also come up with marketing strategies that also target a wider customer base.

Shinsegae Duty Free introduced Korean fashion brands that rose to fame after Korean celebrities were spotted wearing their items. Sales of OIOI and Evisu jumped 164% and 101.3% in August, respectively. Sales of Nerdy, a street fashion brand created in partnership with K-pop idol Taeyeon, jumped 60% during the cited period.

“There could be a silver lining if China decides to ease the lockdown on October 16 when the country’s party congress is held. But in the long term, we think it’s prudent to be less dependent on sales generated by Chinese dealers,” said a duty-free shop manager who wished to remain anonymous.

According to data from the Financial Monitoring Service, Lotte Duty Free posted an operating loss of 89.2 billion won ($61.9 million), down 1,494 percent from 6.4 billion eons of 2021, in the first half of this year.

Noting that the duty-free business accounts for about 80% of Hotel Lotte’s revenue, its sharp underperformance weighed on the hotel brand’s second-quarter earnings.

Hyundai Duty Free department store’s operating loss also jumped 79.2 percent year-on-year to 13.8 billion won during the cited period.

On the other hand, the two duty-free shops – Shilla and Shinsegae – generated profits of 24.5 billion won and 22.6 billion won after selling stocked goods through online platforms.

By Byun Hye-jin ([email protected])

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