Duty-Free Industry Anticipates Next Month's China Event More Than Limit Increase

From the 6th, Duty-Free Allowance Raised from $600 to $800
Major Marketing Campaigns Begin in Duty-Free Industry... High Exchange Rate Compensation Events Also
However, Recovery of Daigou Affected by China's Lockdown Is Key
Next Month's Chinese Political Events and Other External Factors Under Watch

[Asia Economy Reporter Yuri Kim] The duty-free industry is experiencing mixed feelings of expectation and concern. Although it is the first year of the endemic phase (periodic outbreak of infectious diseases), the duty-free industry missed the summer peak season effect due to psychological contraction caused by high exchange rates and a decrease in demand from Chinese "ttaigong" (Chinese individual traders). They plan to seek a turnaround in domestic customer visits during the Chuseok holiday and year-end season, leveraging the increase in duty-free purchase limits. However, some are focusing more on external factors such as the political situation in China and Korea-China relations, as the recovery of foreign customers?especially ttaigong sales, which account for over 90% of total duty-free sales?is crucial.

According to the Korea Duty Free Shops Association on the 6th, domestic duty-free sales from January to July this year, the first year of the endemic phase, amounted to 9.7984 trillion KRW. This is similar to the 9.7772 trillion KRW recorded during the same period last year when COVID-19 was at its peak. Although social distancing measures were lifted in April and domestic travelers began overseas trips in earnest, monthly sales remained between 1.3 trillion and 1.4 trillion KRW in April, May, and June, and even dropped to the 1.2 trillion KRW range in July, the summer peak season. The industry remains trapped in the "COVID box range," with monthly sales hovering around 1 trillion to 1.5 trillion KRW since the pandemic.

The biggest cause is the sluggish sales from ttaigong among foreign customers, who account for over 90% of domestic duty-free sales. Due to China's lockdowns related to COVID-19, domestic consumption in China declined, significantly reducing the sales volume generated by ttaigong. The number of domestic visitors to duty-free shops increased from about 600,000 at the beginning of the year to 833,058 in July, and sales rose from 84.8 billion KRW to 130.7 billion KRW. However, foreign sales only increased from 1.0771 trillion KRW to 1.1168 trillion KRW during the same period.

In this situation, the industry has immediately turned its attention to the expected recovery in domestic sales due to the increase in duty-free purchase limits. They are focusing on raising the average spending per domestic visitor and have launched marketing campaigns accordingly. Starting today, the duty-free purchase limit for overseas travelers has been raised from 600 USD to 800 USD, prompting companies to launch aggressive promotions simultaneously. Regarding liquor, the previous limit of one bottle (1ℓ, under 400 USD) has been increased to two bottles (2ℓ, under 400 USD). Lotte Duty Free's Incheon Airport Terminal 2 store is holding an event offering up to 30% discounts when purchasing three or more bottles of brands such as Ballantine's, Royal Salute, Johnnie Walker, and Hennessy. In downtown stores, Ballantine's 21-year-old Golden Quest and Soojungbang are being sold at 50% and 40% discounts, respectively, this month. 'Exchange rate compensation events' to reduce the burden of high exchange rates are also ongoing. In downtown stores, if the store's exchange rate exceeds 1,350 KRW, customers receive exchange rate compensation of up to 500,000 KRW based on purchase amount, along with LDF Pay worth 2.97 million KRW. This is the largest compensation amount ever given to domestic customers.

Shilla Duty Free is also offering up to 55% discounts on popular liquors such as Ballantine's, Johnnie Walker, and Macallan at its Seoul store, along with up to 70% discounts on sunglasses, fashion watches, jewelry, and some imported cosmetics. In line with the increase in duty-free limits, they are giving scratch coupons to all domestic customers who purchase over 800 USD until the 12th. The first prize is 1 million S Rewards points worth 1.3 million KRW. Shinsegae Duty Free is also offering limited quantities of Ballantine's, Royal Salute, and Johnnie Walker at 30% discounts at its Incheon Airport and main stores until the 30th of this month.

However, the increase in the duty-free limit (200 USD) falls far short of industry expectations, and the psychological burden on travelers due to high exchange rates remains, making it difficult to expect dramatic effects, according to overall industry analysis. Ultimately, the key factors are changes in China's COVID-19 response policies affecting ttaigong, and the recovery of Korea-China relations?external variables involving China. This is why the industry is paying close attention to the upcoming Chinese Communist Party National Congress next month, where President Xi Jinping's third term will be decided. A duty-free industry official said, "Many expected the duty-free industry, which was hit hard by COVID-19, to enter a full recovery phase with the endemic, but depending on the remaining second half of the year, the results could be worse than last year. Ultimately, as during COVID-19, we are putting all our efforts into domestic marketing, hoping to do whatever it takes to survive."

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