The Once Hot 'Jaego Myeongpum' Popularity Fades... Duty-Free Industry Sighs

70% of Inventory Is Cosmetics, Difficult to Sell Due to Expiration Dates
Airport Rent and Third-Party Overseas Return Emergency Measures Ending Soon
COVID-19 Spread Continues... Duty-Free Industry Faces Growing Worries

[Asia Economy Reporter Seungjin Lee] The duty-free industry, hit hard by the novel coronavirus infection (COVID-19), is facing deepening concerns. The popularity of 'excess luxury goods'?which once caused sales sites to crash?has waned, and with the global resurgence of COVID-19, it has become difficult to expect airport normalization not only this year but also in the first half of next year.

◆ Declining Sales of Excess Luxury Goods = According to the duty-free industry on the 31st, among the total 40 billion KRW worth of excess duty-free inventory sold simultaneously by the three major duty-free stores?Lotte, Shilla, and Shinsegae?only about 60% has been sold, with the remaining 40% confirmed to remain as dead stock. Popular products quickly sold out due to limited quantities and high demand, but unpopular products remain unsold despite high discounts. Even bags from the same luxury brand saw some items sell out early, while others did not see proper sales for over a month.

An industry insider explained, "Sales of excess duty-free goods are possible until October, but most of the items that could be sold have already been sold."

◆ 70% of Duty-Free Inventory is Cosmetics = As of the end of last year, the inventory assets of the top three domestic duty-free stores reached 2.5 trillion KRW. Lotte Duty Free holds the largest amount at 1.0731 trillion KRW, followed by Hotel Shilla at 720.9 billion KRW, and Shinsegae DF at 636.9 billion KRW. Due to the impact of COVID-19 in the first quarter of this year, each company's inventory assets increased by 100 billion to 300 billion KRW, bringing the total inventory assets close to 3 trillion KRW.

In response, the duty-free industry requested the Korea Customs Service to temporarily allow the sale of excess duty-free goods domestically, and since last month, duty-free products mainly consisting of bags and accessories have started to be released into the market. News that luxury goods could be purchased at prices up to 50% cheaper than the normal price attracted consumers, causing online sales sites to crash and crowds to form in front of department stores from early dawn.

On the 21st, citizens are lining up to purchase duty-free stock products at the Shilla Duty Free Seoul branch in Jangchung-dong, Seoul. / Photo by Mun Ho-nam munonam@

The duty-free industry is burning with anxiety. About 60-70% of the inventory assets consist of cosmetics. However, cosmetics have expiration dates and must be individually inspected by the Ministry of Food and Drug Safety, making practical sales impossible. The remaining duty-free goods mostly consist of alcohol and tobacco, so sales of luxury accessories only provide a slight relief, and even this is now declining.

Airport rent continues to be a burden. The three duty-free stores received a 50% discount on Incheon Airport rent from March to August, paying 40 billion KRW per month. When the discount period ends next month, they will have to pay 80 billion KRW monthly again.

◆ 'Daigou' Supports the Duty-Free Industry = Ultimately, the duty-free industry has no choice but to rely on 'Daigou (Chinese personal shoppers)' to dispose of the still accumulating inventory assets worth trillions of KRW. In fact, last month, domestic duty-free sales reached about 1.1113 trillion KRW, a 9.3% increase from May, largely influenced by Daigou. Notably, 80% of last month's sales came from cosmetics, thanks to the continued demand for Korean cosmetics in China.

The problem is that even amid the COVID-19 situation, Daigou were able to purchase duty-free goods relatively easily due to the temporarily permitted third-party overseas return system, which is set to end in October. Through this system, Daigou registered as Chinese wholesale corporations can receive desired duty-free goods locally without entering Korea.

An industry insider said, "COVID-19 is unlikely to subside in the second half of the year, and with emergency measures such as airport rent discounts and third-party overseas returns ending soon, the situation is frustrating. The government needs to consider extending measures like the third-party overseas return system until the market normalizes."

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