The Top Three Luxury Brands Will Not Participate in Duty-Free Inventory Sales

Hermes, Chanel, Louis Vuitton Manage Inventory Directly
Returns Processed After Season Ends
Other Luxury Brands Also Reluctant

[Asia Economy Reporter Lim Hye-seon] As the duty-free industry is pushing for a temporary sale of long-term inventory items held for more than six months to domestic consumers, it has been confirmed that the three major luxury brands are completely excluded from the sales list. Other luxury brands have also expressed negative views on discount sales of inventory items, suggesting that many luxury brands will likely not participate in inventory sales.

According to the duty-free industry on the 20th, the three major luxury brands Hermes, Chanel, and Louis Vuitton have contracts with duty-free shops stating that "inventory management is handled directly by the brand headquarters." Although the timing of returns varies by brand, these brands typically return inventory items once the season ends. This means that the inventory is initially at 'zero.' A duty-free industry official explained, "Hermes, Chanel, and Louis Vuitton repurchase products after the season ends to manage inventory," adding, "This means there is no inventory left at the duty-free shops."

In the luxury market, scarcity and price are factors directly linked to brand value. Luxury brands assign serial numbers to each product during production. Through these numbers, the production time, location, and sales history can be tracked. In the case of Hermes and Chanel, products are also engraved with marks indicating when they were produced. This shows how meticulously each product is managed by luxury brands.

An industry insider said, "Not only the three major luxury brands but other brands will never engage in actions that damage their value," and added, "I understand that most luxury brands have conveyed their intention not to participate in the inventory sales promoted by duty-free shops."

It is also known that duty-free shops are facing difficulties negotiating with some participating brands. To sell inventory items, prices must be lowered, but brands are reluctant. Duty-free products are all purchased by duty-free shops from the brands. The pricing authority lies with the duty-free shops. However, to maintain good relationships with luxury brands, duty-free shops have no choice but to be cautious. When duty-free inventory is released into the market, taxes must be imposed, so maintaining the current product prices reduces price competitiveness. Duty-free shops are discussing with law firms and brands how much depreciation should be applied to the cost of inventory items. In the case of luxury imports, taxes typically range from 8% to 17%.

A duty-free industry official said, "In the end, most of the inventory items sold at duty-free shops will be from somewhat common masstige brands like Coach and Michael Kors," adding, "We are exploring all distribution channels, but it is practically difficult to sell through department stores or outlets where brand stores exist, so sales might be conducted via home shopping or online malls."

The Korea Customs Service has temporarily allowed duty-free shops to import and clear inventory duty-free items and sell them domestically. This provides an opportunity for duty-free shops, which have been on the brink due to the impact of the COVID-19 pandemic. As of the end of 2019, the inventory assets of four companies amounted to 2.5506 trillion KRW. Lotte Duty Free, the number one duty-free shop in Korea as of 2019, had the largest inventory at 1.0731 trillion KRW, followed by Hotel Shilla (720.9 billion KRW), Shinsegae DF (636.9 billion KRW), and Hyundai Department Store Duty Free (119.7 billion KRW). Considering that the inventory assets of Lotte Duty Free and Hotel Shilla increased to 1.3129 trillion KRW and 923.8 billion KRW respectively in the first quarter of this year, it is expected that the current inventory assets of these companies reach around 3 trillion KRW.

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