Why Endemic Duty-Free Shops' Summer Peak Sales Fell Short of 1 Trillion Won

Domestic Duty-Free Shops' July Sales Reach 990.9 Billion KRW
Lowest Monthly Sales Since January (797.4 Billion KRW)

Increased Domestic Sales During Vacation Season... Despite Diversified Customer Base
Significant Impact from Decline in Absolute Sales by Daigou

Global Duty-Free Rankings: Lotte and Shilla Fall to 3rd and 5th
Structural Improvements Over Sales Growth... "Support for Self-Help Efforts Needed"

Monthly sales at domestic duty-free shops have slipped below 1 trillion won during the peak summer season. Following the endemic phase (periodic outbreaks of infectious diseases), demand for overseas travel increased during the summer vacation period, leading to the highest domestic sales since COVID-19. However, the peak season effect was diminished as the commission fees for Chinese "ttaigong" (daigou) agents, who account for an overwhelming share of sales, normalized and their visits decreased.

On the 28th, marking the start of the peak summer vacation season, international travelers visiting Incheon International Airport Terminal 1 are moving towards the departure hall. Photo by Jinhyung Kang aymsdream@

According to the Korea Duty Free Association on the 30th, domestic duty-free shop sales in July amounted to 990.9 billion won, down 8.06% from 1.0708 trillion won in June. This is the first time in six months since January (797.4 billion won) that monthly sales have fallen below 1 trillion won. The decline is attributed to the continued decrease in sales from ttaigong due to the industry's efforts since the beginning of the year to reduce ttaigong commission fees.

However, domestic sales increased noticeably. With the full-fledged summer vacation season underway, the number of domestic customers rose to 1,392,884, and domestic sales reached 240.5 billion won, marking the highest sales since January 2020 (323 billion won), just before the full spread of COVID-19. The proportion of domestic sales in total July sales rose to about one-quarter.

It is also encouraging that the customer base has diversified from being dominated by ttaigong to include tourists from Japan, Greater China, Southeast Asia, as well as individual tourists from North America, South America, and Europe. During the COVID-19 period, ttaigong sales accounted for up to 95%, but as of July, the proportion of Chinese sales dropped to around 70-80%. For Lotte Duty Free, domestic sales increased by about 19% compared to June, but Chinese sales, which account for about 90% of foreign sales, decreased by 13%.

The duty-free industry expects the effect of Chinese tourists (yukeo) to fully materialize in September and October, coinciding with Chinese holidays, as group tours from China have resumed for the first time in over six years. However, the common consensus is that it will take time for sales to recover to pre-COVID-19 levels, as the industry plans to continuously focus on market normalization through diversification of sales sources rather than just sales volume.

The position of Korea as a "duty-free powerhouse" has weakened due to these structural improvements that followed immediately after COVID-19. In the global duty-free rankings released last year by the UK duty-free specialist magazine Moody David Report, Lotte Duty Free ranked 3rd and Shilla Duty Free 5th, each dropping one and two places respectively from the previous year’s 2nd and 3rd positions. Since 2020, after COVID-19, Korea lost the top spot to China Duty Free Group (CDFG), a Chinese state-owned duty-free operator, and last year also lost 2nd place to Swiss duty-free company Dufry. Shinsegae Duty Free also dropped from 7th place in 2021 to 8th last year.

Experts say it will take time for efforts toward healthy growth, such as diversification of sales sources, to show results, and emphasize the need for government policy support to foster the domestic duty-free industry. There are calls for further raising the duty-free allowance, which has been adjusted to around 800 dollars.

Professor Seo Yong-gu of the Department of Business Administration at Sookmyung Women’s University said, "The drop in global duty-free rankings should be viewed with a sense of crisis, as other countries have faced similar difficulties, so it cannot be attributed solely to COVID-19." He added, "The perspective that duty-free shops receive special privileges should be shifted to viewing them as a tourism catalyst industry, enhancing foreign shoppers’ satisfaction and transforming the overall image of 'Made in Korea' content. This comprehensive approach should be utilized." He continued, "Even though the industry is currently experiencing visible sales declines, it is reducing commission fees for agents. The government should improve the licensing fee system based on sales to reduce the industry's burden and visibly raise the duty-free allowance to around 2,000 dollars for effective results."

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