A Lotte Duty Free store in downtown Seoul
South Korea welcomed a record-high number of post-pandemic foreign tourist arrivals for a single quarter in the first three months of this year, but sales at duty-free shops in the country remained stagnant or continued to slide.
They have been closing some branches, or drastically cutting workforce with no signs of a strong sales recovery.
In the first quarter, a total of 3.4 million foreign travelers arrived in South Korea, about 90 of pre-pandemic levels.
Average monthly sales at domestic duty-free stores in the first five months of this year were around 1.2 trillion won in total, little changed from that of last year. In 2023, their combined sales almost halved to 13 trillion won, compared with 25 trillion won in 2019.
In 2019, just before the COVID-19 outbreak, Seoul was the only city in the world with more than 10 duty-free shops downtown.
According to the duty-free shop industry on Thursday, the number of duty-free shops operating in Seoul has decreased to eight from 13 before the COVID-19. Nationwide, it fell to 16 from 22 in 2019.
(Graphics by Dongbeom Yun)
The duty-free industry in South Korea have been going downhill since 2019. China’s ban on group tours to South Korea from 2017 had dealt a heavy blow to small and medium-sized shops.
Suwon Encore Duty Free in Suwon, Gyeonggi Province, has shuttered down for several years.
Lotte Duty Free, the country’s No. 1 duty-free store operator, recently downsized its operations in its Jamsil branch next to Lotte World Tower, a 123-story skyscraper. In 2022, it shut down its branch in Convention and Exhibition Center (COEX).
Hyundai Department Store Duty Free Co. within its flagship Hyundai Department Store in Gangnam and HDC Shilla Duty Free Ltd. in Yonsan I-Park Mall are suffering losses.
Shinsegae Department Store shuttered duty-free operations in its flagship branch Gangnam in 2021.
(Graphics by Dongbeom Yun)
The same goes for other leading Korean retailers. Hanwha Galleria shut down its two duty-free stores in Seoul: Galleria Duty 63 within a landmark skyscraper in 2019 and Doota Duty Free in Dongdaemun Market in 2020.
SM Duty Free operated by Korean travel agency Hana Tour has closed.
Before the COVID-19 pandemic, Chinese tourists flocked to domestic duty-free shops in groups and scooped up premium Korean beauty products and luxury fahsion brand items. But the trend has changed.
Most returning Chinese tourists are now individual travelers and in terms of both money and time are looking for bang for their buck. They prefer buying cheap items at big-box supermarkets and eat at everyday local Korean restaurants.
A Shinsegae Duty Free store in Myeongdong, Seoul
Worse yet, the country’s top three retail groups have been in the red in other tourist cities such as Jeju Island and Busan. Many foreign luxury brands have pulled out of duty-free shops there.
The only place where they are faring well are airports. However, they find it difficult to reach their break-even point from domestic airports due to high rents. Last year, Lotte Duty Free decided to withdraw from the Incheon International Airport.
“It was unusual that large duty-free stores made big profits in megacities such as Seoul, not in resort areas such as Hawaii and Hainan in China,” said an executive at a domestic duty-free store operator.
“Tourist demand, which has been flocking to downtown duty-free shops, is expected to disperse to other retail stores such as department stores and outlets,” he added.
By Jae-Kwang Ahn
ahnjk@hankyung.com
Yeonhee Kim edited this article
