"Oh New Coronavirus..." Duty-Free Industry Faces a 'Cruel February'

Overcoming THAAD Retaliation, Now the Novel Coronavirus

Duty-Free Shops: "No Lunar New Year Boom in Sight"

[Asia Economy Reporter Lim Hye-sun] "I thought we had overcome the tough times, but now that a major crisis has hit, all I can do is sigh."

The novel coronavirus infection (Wuhan pneumonia) has struck the duty-free shop industry. Earlier this year, with prospects of easing the Hanbanryeong (限韓令, Korean Wave Restriction Order), expectations for a Chinese Lunar New Year boom were higher than ever. However, as novel coronavirus cases have emerged worldwide, duty-free shop sales have instead declined.

According to the duty-free industry on the 30th, sales from the three major duty-free shops?Lotte, Shilla, and Shinsegae?during the period from the 16th to the 29th, which includes the Chinese Lunar New Year, dropped by about 20-30% compared to sales up to the 15th of this year. The anticipated Lunar New Year boom disappeared. Even last year, when the Hanbanryeong continued following the THAAD (Terminal High Altitude Area Defense) incident, there was a Lunar New Year boom. Duty-free sales in January and February last year reached 3.4515 trillion won, marking the highest ever for that period.

Thanks to visits from Chinese tourists, January sales managed to hold up somewhat. A duty-free industry insider said, "Since major Chinese daigou (代工, proxy shoppers) visited before the Lunar New Year holiday, this month's performance is not bad," adding, "Sales from the 1st to the 15th increased 2 to 3 times compared to last year, but it's disappointing that we couldn't enjoy the Lunar New Year boom."

The problem starts in February. Due to the novel coronavirus situation, Chinese authorities are advising not only group tourists but also individual travelers to refrain from traveling, making it highly likely that daigou will be unable to come. According to China News Network, on the 28th, the Chinese National Immigration Administration stated, "Residents of mainland China planning to leave the country soon are advised to postpone their travel unless there are special circumstances." A duty-free shop official said, "If daigou do not come to Korea, performance could worsen compared to the Middle East Respiratory Syndrome (MERS) outbreak," expressing frustration, "We can only watch the situation in China."

Given these circumstances, duty-free companies preparing for business expansion are also anxious. Hyundai Department Store, which showed strong determination in the duty-free business, has entered a period of deliberation. Hyundai Department Store planned to open its second downtown duty-free shop by taking over the Dongdaemun Doota Duty-Free Shop on the 20th of next month, but it is highly likely to be postponed. A duty-free industry insider said, "Opening a duty-free shop amid such uncertain conditions is a risky choice," adding, "Hyundai Department Store may reconsider the February opening."

The bidding atmosphere for the Incheon Airport Terminal 1 duty-free shop, scheduled for the 27th of next month, is also cooling down. The prolonged novel coronavirus situation has complicated the calculations for duty-free operators. Changes in the duty-free operation period and bidding zones, combined with the novel coronavirus crisis, have made it difficult to rush into the market. The duty-free operation period consists of a basic contract period of 5 years, with an additional 5-year extension possible based on evaluation results. In other words, if a company fails to win the bid this time, it will be difficult to enter the Incheon Airport duty-free market for 10 years. This was why competition was expected to be fierce and bid amounts high. However, with the possibility of a prolonged novel coronavirus crisis, companies cannot recklessly offer aggressive prices.

A duty-free industry insider explained, "For domestic duty-free operators, the parent companies are retail giants," adding, "With business environment changes and various regulations causing performance slowdowns, retail companies focusing on structural improvement will find it difficult to invest hundreds of billions of won annually in airport duty-free shops that operate at a loss."

This content was produced with the assistance of AI translation services.