Lotte Duty Free, South Korea’s largest duty-free business operator, has restarted sales to Chinese bulk resellers, known as daigou traders, reversing a surprise decision earlier this year to suspend dealings with them amid falling profitability.
Lotte, which in January became the first in the domestic retail industry to cut off all daigou transactions, has seen Chinese resellers’ sales steadily rise since June, particularly in Korean cosmetics brands.
Lotte’s sales to Chinese bulk traders reached tens of billions of won, or multimillion dollars, last month and are accelerating this month, industry sources said.
The move comes as the Korean government plans to allow visa-free entry for tourist groups from China starting Sept. 29 through June 2026.
MIDDLEMEN PURCHASES PEAKD DURING PANDEMIC, HURTING PROFITABILITY
Daigou middlemen buy duty-free goods in bulk at discounted rates in Korea and resell them across China and Southeast Asia.
Their rise dates back to 2017, when Beijing restricted group tourism to Korea amid tensions over Seoul’s deployment of the US THAAD missile defense system.
During the COVID-19 pandemic, daigou purchases accounted for as much as half of duty-free sales in Korea. The practice, however, sparked a ruinous cycle of rebates and commissions that eventually eroded industry profitability.
Lotte’s January withdrawal from the business was billed as a structural shift to improve margins.
The move trimmed commission costs and lifted operating profit, but overall sales shrank, prompting Lotte to reopen daigou channels after five months, sources said.
COMPETITION SET TO RISE, BUT IT WILL BE DIFFERENT THIS TIME
Lotte’s resumption of transactions with Chinese resellers also came after its rivals, Shilla Duty Free and Shinsegae Duty Free, didn’t follow its lead, continuing to work with Chinese peddlers.
Lotte said the resumption did not mark a full policy reversal.
“The January measure was not about refusing all business with Chinese resellers but about stopping unprofitable deals,” a company official said. “Current transactions are carried out only when profitability is assured.”
The return of daigou transactions is reigniting concerns over a renewed commission battle across the sector, especially as Korea prepares to welcome back Chinese tour groups under a new visa-free entry policy from Sept. 29.
“The competition will be fierce,” said an industry official. “But this time, we don’t expect the excessive commission payouts that devastated margins in the past.”
By In-Soo Nam
isnam@hankyung.com
Jennifer Nicholson-Breen edited this article.
