Duty-Free Industry Emerging from Downturn... Profitability Improvement Gains Momentum

Shilla Duty Free Swings to Profit in Q1
Lotte, Shinsegae, and Hyundai Also Sharply Narrow Losses
Business Structure Improved Through Lower Daigong Commissions and Eased Rent Burden
Stronger Yuan Boosts Chinese Spending Power... Upward Trend in Performance Expected

Amid rising exchange rates and changes in shopping patterns among both domestic and international tourists, the duty-free industry, which struggled even after the transition to endemic (periodic outbreaks of infectious diseases), appears to be hitting bottom. This turnaround is attributed to efforts to improve business fundamentals by focusing on profitability, which is now reflected in performance results. As the influx of foreign tourists continues to rise, expectations are growing that a potential increase in purchasing power among Chinese tourists—once considered the industry's biggest spenders—could help the sector recover from its slump.

Tourists, including Chinese visitors, are browsing the store at Shilla Duty Free Myeongdong Branch in Jung-gu, Seoul. Photo by Yonhap News Agency

According to the Financial Supervisory Service's electronic disclosure system on April 28, Hotel Shilla's duty-free (TR) division, which was the first among its peers to announce results this year, reported an operating profit of 12.2 billion won for the first quarter. This marks an improvement of more than 7 billion won from an operating loss of 5 billion won in the same period last year, swinging back into the black. During the same period, sales grew by 7% to 884.6 billion won. Earlier, Shilla Duty Free, operated by Hotel Shilla, completely withdrew from the DF1 zone (cosmetics, perfumes, liquor, and tobacco) at Incheon International Airport in mid-April due to the burden of rent amid challenging industry conditions.

Despite not yet reflecting the full results of its business restructuring, the company achieved a rebound in performance, providing momentum for continued growth. The company explained, "Although the industry continues to face challenges due to high exchange rates and a global economic downturn, our focus on profit-oriented, sound management has allowed us to secure a stable business foundation."

Securities analysts predict that other major duty-free operators—Lotte, Shinsegae, and Hyundai—who are expected to announce their first-quarter results soon, will likely see operating profits improve compared to the same period last year, even if sales remain flat or decline slightly. Previously, the four leading duty-free companies recorded a combined operating loss of 280 billion won in 2024 and have since focused on business improvement.

Lotte Duty Free reduced transactions with Daigong (Chinese resellers), which had imposed a heavy commission burden, and closed overseas non-profitable stores such as the Danang downtown duty-free shop in Vietnam, shifting its strategy to focus on profitability. As a result, its operating loss of 143.2 billion won in 2024 turned into an operating profit of 51.8 billion won last year. During the same period, Shilla Duty Free and Shinsegae Duty Free reduced their operating losses from 69.7 billion won and 37.4 billion won to 47.3 billion won and 7.4 billion won, respectively, narrowing their deficits by about 20 to 30 billion won. Hyundai Department Store Duty Free also swung to a profit, turning a 28.8 billion won operating loss into an operating profit of 200 million won.

This trend in the duty-free industry is seen as a signal that the prolonged slump in performance across the sector may have bottomed out. According to the Korea Duty Free Shops Association, sales to both domestic and foreign customers at Korean duty-free shops fell from 14.2249 trillion won in 2024 to 12.534 trillion won last year, continuing a downward trend after the transition to endemic. However, in March of this year, monthly sales reached 1.0083 trillion won, maintaining a similar level to the same period last year (1.0085 trillion won).

These duty-free companies are expected to intensify competition to attract the growing number of foreign tourists, especially starting with the Incheon Airport branch, where all four major players have re-entered the market. Lotte Duty Free, returning to the Incheon Airport branch for the first time in three years since 2023, is showcasing 15 stores and over 240 brands and expects to expand annual sales by more than 600 billion won. Hyundai Department Store Duty Free has expanded its footprint by securing the business rights to the cosmetics, perfumes, liquor, and tobacco section—previously operated by Shinsegae Duty Free—following its existing presence in the luxury, fashion, and accessories DF5 and DF7 zones. Shilla Duty Free and Shinsegae Duty Free plan to continue operating their existing fashion and boutique zones at Incheon Airport while focusing their efforts on strengthening downtown duty-free stores and enhancing content offerings.

Kim Myungjoo, a researcher at Korea Investment & Securities, noted, "With the recent strengthening of the yuan, purchases by Chinese tourists visiting Korea are increasing, and the commission rates (such as customer referral fees) paid by duty-free companies to Daigong, who are major customers in the duty-free channel, have been on a downward trend since March this year." He added, "If this trend continues, the second quarter operating results of duty-free companies could improve significantly beyond market expectations."

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