South Korea.According to data from the Korea Duty Free Association, nationwide duty-free retail sales (excluding in-flight retail sales) fell by -22.8% to KRW 1.37 trillion (USD 10.34 billion) last year.
Although the number of customers increased by 104% to 22,090,480, this shows that the average transaction value has dropped significantly, which is the result of a crackdown on daigou transactions that began in early 2022.
This conclusion is highlighted by the -32.4% year-on-year decline in sales to foreigners (mainly the purchasing agency business in 2022), despite a 285.4% increase in the number of foreign customers (see chart below).
South Korea’s duty-free shops, once known as the “goose that lays golden eggs,” have been forced to worry about their survival due to a sharp decline in sales and operating losses.
This is because the Chinese, as “big” customers, ignore Korean duty-free shops. Domestic duty-free shops are trying to overcome the crisis through overseas expansion, but it is expected that it will be difficult to make a dramatic change for the time being. – Korea Economic Daily
What a wonderful story this bar graph shows. With the daigou pipeline that supported the market through the pandemic rapidly disappearing, the halcyon days of 2019 seem far away. All charts provided by Korea Duty Free Association. Click on the graphic to enlarge it.
Why something went terribly wrong in the world’s largest duty-free market – Korea Economic Daily
Some duty-free retailers must worry about what to do with the huge inventory accumulated by daigou and the influx of Chinese group tourists.
There are even self-deprecating remarks in the industry such as “I miss the COVID-19 era when purchasing agents came to visit.”
The duty-free retail industry expected an influx of Chinese package tour tourists into the country last year. But expectations are wrong. Since Chinese travel agencies do not provide cheap Korean package products, Chinese travel patterns have changed from group tours to individual travel.
Individual travelers no longer buy expensive brand-name products at duty-free shops, but mainly buy cheap products at hypermarkets and Daiso, South Korea’s popular 1,000 won ($0.76) chain.
An official from the tourism industry said, “Individual tourists like to visit the delicious restaurants and distribution stores that Koreans like to visit. They seem to find no reason to spend money in duty-free shops.
In the past, Korean duty-free shops acted as wholesalers of Korean cosmetics for Chinese consumers. In 2019, when duty-free shop sales peaked, Chinese accounted for 80-90%, sweeping Korean cosmetics in duty-free shops.
Just like Amorepacific’s Sulwhasoo and LGThe history behind home care has caused a sensation in China, with Chinese purchasing agents flocking to Korean duty-free shops to buy in bulk and then return to China for resale.
However, Chinese purchases of Korean cosmetics have dropped significantly since COVID-19.High-priced Korean cosmetics have been replaced by European and American brands Lancôme and Estee Lauder Lauder, and Chinese local brands such as Proya are emerging as mid- to low-priced cosmetics.
South Korean cosmetics brands, which dominate the rankings at China’s major shopping events such as Double Eleven, are not even in the top ten and are considered “outdated” brands.
In order to attract purchasing agents, South Korean duty-free shops charged customers 3.8745 trillion won (about 22% of sales in 2021), but even this was not effective.
Source: Korea Economic Daily
Click on the image to read our report on Hotel Shilla’s severe fourth-quarter losses
Sales in December increased by 13.2% from the previous quarter (lower than the usual November) to 1,307,331,912,269 won (US$983 million), and the number of customers increased by 3.1% to 2,186,073.
Although the number of customers fell by -0.7% to 641,873, sales to foreigners increased by +14.4% in December to KRW 1,053,825,953,886 (USD 792.4 million), accounting for 80.6% of total revenue.
A leading travel retail executive in South Korea told the Moody’s Davitt Report: “This year, daigou sales will suffer more erosion, but starting from the upcoming spring break, tourists from China will start to increase.”
“In general, industry stakeholders are very pessimistic about sales returning to previous levels. As you can see, Shilla Duty Free suffered an operating loss in the second half of 2023 after being profitable in the first half. This means As sales quality deteriorates, the daigou industry becomes increasingly less profitable as retailers struggle to maintain it at previous levels.
“It is also obvious that in terms of daigou, both brand supply and consumer demand are getting less and less. Even for individual (individual) sales, the current per capita spending of Chinese people is far lower than the level in 2019 , and the number is getting smaller and smaller.
Travel retailers are doing their best to stimulate spending among South Korean consumers in the wake of the economic downturn caused by daigou. It is reportedLotte Duty Free is running a seasonal campaign targeting Koreans preparing to travel abroad during the busy Lunar New Year period.
All charts provided by Korea Duty Free Association. Click on the graphic to enlarge it.
South Korean travel retailers are becoming increasingly imaginative in moving away from their long-standing reliance on daigou dealers.For example, the recently opened Lotte Duty Free Shop A series of pop-up shops It continues to target Millennials and Generation Z (MZ consumers).
He noted that sales to Koreans were unchanged from last month due to the country’s economic downturn and the country’s Thanksgiving holiday, which has extended into early October.
Sales at Incheon International Airport are expected to show a more normalized recovery pattern in early 2024, while major stores will open upon completion under a new tender awarded earlier this year. ✈
City center sales continue to be dominated by foreign buyers, mainly Chinese, while Korean customers account for the majority of airport sales
