The Japanese Government is considering the introduction of duty free arrival and downtown pre-order departure shopping, with huge potential implications for the global industry.

 

The Business can exclusively reveal that the Japanese Finance Ministry launched the arrival and downtown shop study earlier this summer. This forms part of a wider government taxation reform review aimed at identifying changes to help boost Japan’s future economic development.

 

Speaking on condition of anonymity, very senior Japanese duty free industry sources told The Business last week that arrival shopping and downtown duty free retailing have both been included in the Finance Ministry’s taxation reform policy review. Major Japanese airports have written to the government requesting changes be made to Customs Department regulations to permit the introduction of arrival shopping.

 

OVERSEAS OPERATOR IMPACT…

In addition to generating a huge increase in duty free revenue for Japanese operators if approved, the introduction of duty free arrival and downtown shopping in Japan would equally impact badly on duty free shop revenues in those overseas countries where Japanese visitors are important customers – so causing sizeable losses in revenue for some overseas operators.

 

Leading airport operators understood to be backing these new arrival shop proposals include Narita International Airport Corporation, Kansai International Airport Corporation and Chubu International Airport Corporation. All have requested changes in the Customs Department’s rules to allow departing passengers to purchase duty free goods for collection at arrival hall collection points on their return to Japan.

 

Japanese travellers’ overseas purchases of bulkier and heavier goods, such as liquor and tobacco will obviously be affected if the government approves arrival shopping. Other categories will also be impacted if Japanese passengers are allowed to pre-order goods ready for collection on their return.

 

Airport operators are not the only organizations with a strong interest in the Ministry of Finance taxation reform review. Many Japanese city governments are interested in opening downtown duty free shops, casinos and other attractions to bring in foreign visitors and boost their local economies.

 

 

Potential conflicts of interest are already apparent as the Finance Ministry taxation reform policy review gets underway.

 

Japanese airports, for example, are in favour of arrival shopping, but do not support proposals to introduce downtown shopping and the opening of pre-order collection points in their airports, fearing that pre-order shopping would divert a share of their sales.

 

BALANCING ALL INTERESTS

How the government will balance the various duty free shopping interests if arrival and downtown duty free shopping is approved remains to be seen. Currently, duty free shopping in Japan is largely controlled by airport authorities with independent operators holding concessions at relatively few large airports – and then only for a limited number of shops and boutiques at any airport.

 

Currently, more than 20 smaller provincial airports with limited international flight services operate duty free shops themselves. One consequence of the fragmented nature of Japan’s duty free industry is that brands have greater power than in many other countries, where duty free shops are mostly run by large international operators.

 

Meanwhile, duty free operators and airport authorities in countries attracting large numbers of Japanese visitors will be watching these developments in Japan with great interest. At the same time, elsewhere in Asia, South Korean airports and duty free operators have been quietly – and unsuccessfully – lobbying the government for some time to approve arrival shopping.

 

SOUTH KOREA COULD FOLLOW…

If Japan gives the go ahead, then South Korea – the world’s biggest duty free market – could well follow suit. Airports and duty free operators may well seek government support arguing that arrival shopping is needed to offset the potential loss of revenue from reduced Japanese spending in downtown duty free stores and airport outlets. [Until now, Korean Customs and Korean Air have both been strong opponents of arrivals shopping-Ed].

 

Meanwhile, it is no secret that in China the state-run China Duty Free Group has also been lobbying the government to open airport arrival shops. The country’s largest duty free operator with over 160 shops, is asking the government to change Customs regulations to permit duty free arrival shopping to be introduced in international airports around China where it currently holds exclusive sole rights to operate duty free shops.

 

In fact, duty free arrival shopping and pre-order arrival shopping for collection on return is already permitted in Beijing Capital International Airport, Shanghai Pudong International Airport and Shanghai Hongqiao Airport, where Sunrise Duty Free, a private company, holds the duty free departure and arrival shopping concessions.

 

[Photo credits: top image: Kansai Osaka International Airport; middle: Tokyo Narita T1; and above: Kansai Airport. All images, David Hayes, September 2012. The Business: all copyright reserved].