Duty-Free Shops Hit Hard by COVID-19, 1Q Earnings Plummet One After Another

Hotel Shilla Turns to Deficit... Duty-Free Store Alone Expected to Post Operating Loss of 21.9 Billion KRW
Shinsegae Forecasts 79.9% Drop in Operating Profit YoY... Hyundai Department Store Gangnam Duty-Free Daily Sales Also Down 40%
Dark Outlook for 2Q as Chinese 'Bottari-sang' Activity Shrinks

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] The duty-free shop industry is expected to receive a poor performance report for the first quarter of this year as it has been directly hit by the impact of the novel coronavirus infection (COVID-19). With the recovery of foreign demand uncertain due to the ban on Chinese entry and the reduction of flights, it is forecasted that gloomy results will continue into the second quarter.

According to the Korea Duty Free Shop Association on the 13th, domestic duty-free shop sales in February recorded 1.1025 trillion won, down 45.5% from the previous month. The number of visitors in the same month also sharply dropped by 54.3% to 1,754,175 compared to the previous month. The situation worsened further as international flights were suspended from last month. This is why the first quarter performance reports of major duty-free shops have been consecutively poor.

According to NH Investment & Securities, Hotel Shilla is expected to record sales of 787.8 billion won and an operating loss of 28.1 billion won in the first quarter of this year. Sales decreased by 41% compared to the same period last year, and operating profit turned to a loss. It is analyzed that the spread of COVID-19 has reduced global travel demand and the spread of 'social distancing' has led to results far below expectations.

The duty-free sector was particularly hard hit. The duty-free division is expected to record sales of 726.4 billion won, down 41% from the same period last year. While operating profit in the first quarter of last year was 82.2 billion won, it turned to a loss this year, plummeting to an operating loss of 21.9 billion won. Due to the impact of COVID-19, sales at downtown and airport stores are estimated to have decreased by 25% and 63%, respectively, compared to the same period last year.

Hyundai Department Store also showed poor performance. According to DB Financial Investment, consolidated sales for the first quarter are expected to be 1.3052 trillion won, with operating profit of 45.6 billion won. These figures represent decreases of 17.6% and 39.3%, respectively, compared to the same period last year. Although the department store sector is showing a slight recovery due to the weakening impact of COVID-19 and the deferred effect of luxury consumption demand, duty-free shops still seem to be struggling. Daily sales at the Trade Center branch in Gangnam-gu, Seoul, sharply dropped to 1 billion won, which is 58.8% of 1.7 billion won in the first quarter of last year.

Shinsegae's first-quarter performance is also bleak. According to Yuanta Securities, consolidated sales for the first quarter of this year are expected to be 1.2336 trillion won, with operating profit of 22 billion won. Compared to the same period last year, sales decreased by 18.7% and operating profit by 79.9%. The drop in the duty-free sector was particularly significant. Sales fell by 27.8%, from 703.3 billion won in the first quarter of last year to 507.5 billion won. This was the largest decline among all business sectors. Operating profit, which was 12.6 billion won during the same period, turned to an operating loss of 26.1 billion won.

The industry expects even poorer results in the second quarter. NH Investment & Securities researcher Ji-young Lee said, "Due to the ban on Chinese entry, flight suspensions, and domestic quarantine policies for entrants, activities of Chinese resellers, the main sales source of duty-free shops, will be very difficult," adding, "Although Incheon International Airport Corporation announced a 20% rent reduction policy, the sales decline is about 95%, so this will not be enough."

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