Duty-Free Shops Show No Signs of Recovery Despite Turning a Profit... "Please Raise the Duty-Free Allowance"

Big 3 Turned Profitable in Q1, but...
Temporary Measures Like Government Patent Fee and Rent Reductions, Operational Downsizing
Rising Chinese Duty-Free Shops and Ongoing Overseas Travel Paralysis
Duty-Free Shops Seeking Breakthrough: "Duty-Free Limit Should Be Raised from $600 to $2,000"

[Asia Economy Reporter Yuri Kim] Although the 'Big 3' duty-free shops succeeded in turning a profit in the first quarter of this year, making it seem like the duty-free industry has passed through the 'COVID tunnel,' the industry's outlook remains bleak. This is because the results stem from the extraordinary belt-tightening measures implemented since last year to cope with the unprecedented paralysis of overseas travel caused by COVID-19, as well as the temporary reduction in fixed costs such as rent. The duty-free industry is raising its voice, saying that given the rising threat from Chinese duty-free shops and the need to strengthen competitiveness in the post-COVID era, there is no other way but to raise the domestic duty-free purchase limit.

◆ Big 3 Posted Profits but "No Sign of Bottoming Out"

According to the industry on the 14th, Lotte Duty Free’s first-quarter earnings, to be released in mid-month, are expected to record profits for the second consecutive quarter following the fourth quarter of last year. Shinsegae Duty Free and Shilla Duty Free, which announced their first-quarter results earlier, also turned operating profits of 41.7 billion KRW and 23.1 billion KRW respectively, compared to losses in the same period last year. Their operating losses in the first quarter of last year were approximately 49 billion KRW and 32.4 billion KRW respectively. Shilla succeeded in turning a profit for the first time since COVID-19, and Shinsegae posted profits for two consecutive quarters following 2.6 billion KRW in the fourth quarter of last year. However, their first-quarter sales were 632.4 billion KRW and 478.9 billion KRW respectively, down 26% and 2% year-on-year.

The improvement in profitability despite the decline in sales was due to the government's patent fee reduction measures and cost-cutting efforts such as reducing operating hours and days. All of these are temporary measures.

Hyundai Department Store Duty Free, the fourth-largest operator, posted an operating loss of 11.2 billion KRW in the first quarter, reducing its loss by only 8.2 billion KRW compared to the same period last year. Small and medium-sized operators remain in a 'business suspension' state in the first quarter and have yet to escape the quagmire of COVID-19. A representative of a small duty-free shop said, "Without normal overseas arrivals and departures, just surviving is daunting."

◆ "Duty-Free Limit Must Be Raised"

Within the industry, voices calling for an increase in the current duty-free limit of $600 (approximately 680,000 KRW) have recently grown louder. Although temporary allowances have been made for domestic sales of inventory duty-free goods and duty-free shopping by passengers on non-landing sightseeing flights, the sales volume remains negligible, and raising the limit is necessary to secure global competitiveness. The industry plans to officially request the government to raise the duty-free limit soon, considering a level around $2,000 (approximately 2.26 million KRW).

Korea’s duty-free limit was raised from $400 in 1988 to $600 in 2014 and has remained unchanged for seven years. The gross national income per capita increased by 21%, from 30.95 million KRW in 2014 to 37.47 million KRW last year. An industry insider said, "Only $200 has been raised in 33 years, but the increase in overseas travelers and national income during this period has not been properly reflected."

The Chinese government took bold measures to support its domestic duty-free shops, such as raising the duty-free limit in the Hainan region to 100,000 yuan (approximately 17.56 million KRW) last year. As a result, China Duty Free Group (CDFG), which ranked fourth last year, overtook Lotte and Shilla to take first place. Japan’s duty-free limit is also 200,000 yen (approximately 2.07 million KRW). In the United States, travelers to U.S. territories such as Guam are allowed up to $1,600 (approximately 1.81 million KRW).

An industry official said, "When considering competitiveness based on duty-free limits, comparison with neighboring countries is essential. Korea’s duty-free limit is relatively low compared to major countries, so increasing the limit is necessary to reduce the gap with neighboring countries."

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