Only Attracting Daigou is the Way... Duty-Free Shops Urge Additional Support

Survival Crisis Severe... Industry Demands "Extension of Third-Party Overseas Shipping and Multiple Shipments"

On the 18th, the arrival hall of Terminal 1 at Incheon International Airport is deserted due to the impact of the novel coronavirus disease (COVID-19). Photo by Moon Honam munonam@

[Asia Economy Reporter Lim Hye-seon] The duty-free industry, which was on the brink due to the novel coronavirus infection (COVID-19) crisis, is drawing attention as it urges the government for additional support measures such as extending the third-party overseas shipment to attract Chinese daigou (baggage traders).

A duty-free industry official said on the 17th, "Although we overcame the crisis with government support measures, the worsening COVID-19 situation has pushed us into a survival crisis again," adding, "Additional support measures are urgently needed." The industry's sense of crisis has grown as duty-free store sales turned downward again in October. According to the Korea Duty Free Shop Association, domestic duty-free store sales in October amounted to 1.3898 trillion won, down 6.4% from the previous month and 36.5% from the same period last year. This marks the first decline in duty-free sales in half a year. The decrease was largely influenced by a drop in foreign customer sales. Foreign customer sales in October were 1.3259 trillion won, down 115 billion won from the previous month. The industry interprets this as a result of reduced daigou sales, which account for 80% of major domestic duty-free store sales.

In particular, with the recent outbreak of the "third wave of COVID-19," daigou visits have sharply declined. This is because the Chinese government has strengthened quarantine measures for arrivals from Korea. Since the 1st of this month, the Chinese government requires travelers coming from Korea to submit both a 'PCR test' certificate and a 'serological test' certificate.

Duty-free companies are demanding additional support measures such as extending third-party overseas shipment and allowing multiple shipments. Currently, when daigou or others purchase goods in bulk, they can only send shipments once per departure. The industry expects that if multiple shipments are introduced, commercial customers like daigou will increase their purchases. The Korea Customs Service is also reportedly positive about introducing multiple shipments. However, the industry believes that multiple shipments alone are insufficient. As the COVID-19 crisis prolongs, the number of arrivals itself decreases, increasing uncertainty, so they argue that the third-party overseas shipment, which is set to end on the 22nd, should be extended. Third-party overseas shipment is a system that allows duty-free goods, which have completed customs declaration, to be sold to overseas duty-free operators without entering the country, enabling daigou to receive desired duty-free products locally without entering Korea. According to data from the office of Rep. Chu Kyung-ho of the People Power Party, duty-free stores' sales through third-party overseas shipment from July to September reached 527.9 billion won.

If the influx of foreign customers is blocked, the industry expects that the cutthroat competition for customer referral commissions (rebates) to attract daigou among duty-free stores will intensify. Typically, large duty-free stores pay referral commissions in the 10% range, while small and medium-sized duty-free stores pay in the 20% range. In the case of Shilla Duty Free, referral commissions in the third quarter of this year amounted to 106 billion won, an increase of about 67% compared to 63.6 billion won in the same period last year. A duty-free industry official explained, "Without additional government support measures, from next year, the industry will engage in excessive competition," adding, "Duty-free stores will engage in discount competition that cuts into their own profits to retain daigou, worsening profitability."

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