Lotte Duty Free Completely Suspends Transactions with Chinese Bottegas

by Oh Jooyean

Published 12 Jan.2025 18:24(KST)

Updated 12 Jan.2025 18:30(KST)

Yonhap News

Lotte Duty Free has become the first in the industry to completely halt transactions with 'Daigong' (Chinese individual shoppers). This is interpreted as a strategy to improve profitability even if sales decline.

According to the duty-free industry on the 12th, Lotte Duty Free stopped sales to Daigong customers starting this year. It is known that transactions were mainly stopped with corporations that had previously been assigned group codes.

This decision is reported to be the determination of Kim Dong-ha, CEO of Lotte Duty Free, who took office at the end of last year. In his New Year's address this year, CEO Kim stated, "If duty-free shops in the past focused on volume-centered growth, now is the time to pursue management activities centered on profitability."

Daigong purchase duty-free goods in bulk in Korea and distribute them to China and Southeast Asia. Their activity expanded after China banned group tourists from entering Korea in response to the deployment of THAAD (Terminal High Altitude Area Defense) in Korea in 2017.

The domestic duty-free industry's record annual sales of 24.8 trillion won in 2021, during the COVID-19 pandemic, was largely influenced by a surge in transactions with Daigong.

However, transactions with Daigong worsened the profitability of duty-free shops. Due to a decrease in Chinese tourists and increased inventory, duty-free shops adopted a business strategy of refunding up to 50% of the product sales price as commission to Daigong. The more the duty-free shops sold, the more losses they incurred.

Lotte Duty Free plans to strengthen marketing strategies to compensate for the sales lost from Daigong transactions by targeting domestic tourists, foreign individual tourists, and VIP customers. To this end, it is known that the marketing division, which was abolished last year, has been reinstated.