Samil PwC "Duty-Free Operators Must Collaborate to Improve Profitability"

Report Diagnoses Duty-Free Crisis
Achieving "Economies of Scale" in Product Sourcing
"Avoid Excessive Payment of Referral Commissions"

To revitalize the declining duty-free industry, solutions such as establishing joint ventures (JV) among duty-free operators and self-regulation efforts on visitor referral commissions have been proposed.

On the 19th, Samil PwC announced the publication of a report titled "Overcoming the Hardship of K-Duty-Free Shops: Crisis Diagnosis and Recommendations," which contains these details.

The report identified the "decline in average spending by Chinese tourists" as the main cause of the delayed recovery of the duty-free business. It explained, "Five to six years ago, many Chinese visitors came to Korea through package tours, but now small-scale individual travel predominates," adding, "They prefer personalized consumption at various cosmetic road shops such as Daiso and Olive Young rather than bulk purchases at duty-free shops."

Increased visitor referral commissions were also pointed out as a factor reducing the profitability of duty-free operators. Initially, referral commissions were paid by duty-free shops to travel agencies or guides as a portion of sales generated from tourists they recruited. However, after the pandemic, this shifted to paying commissions to individual daigou (Chinese personal shoppers), and as competition to attract daigou intensified, referral commissions rose, leading to deficits for duty-free operators.

In response, the report suggested, "If duty-free operators form JVs and operate jointly, they can achieve economies of scale in product sourcing, improving profitability," and added, "In the case of airport duty-free shops, granting exclusive business rights by product category can enhance competitiveness." It cited Singapore Changi Airport as a representative example, where exclusive business rights are granted by product category such as liquor, tobacco, and cosmetics, resulting in lower product purchase prices.

Furthermore, it emphasized, "If competition in the duty-free industry escalates into a chicken game to attract daigou, it could lead to excessive payment of referral commissions, so self-regulation efforts within the industry and strengthened government market monitoring functions are necessary."

Choi Chang-yoon, a partner at Samil PwC, stated, "Duty-free operators need to secure competitiveness through economies of scale," and added, "For downtown duty-free shops with diminished competitiveness, bold business withdrawal should also be considered."

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