The Korea Customs Service (KCS) has authorised online duty free product sales at airport and port shops in a potentially significant intervention for South Korea’s DF&TR sector.

Overseas travellers will be able to place online orders with stores located within departures zones at international transit hubs as part of a package of newly announced measures designed to alleviate the sting of Covid-19 to tourism, while fostering increased competitiveness.

Travellers can also avail of an online transaction mechanism for collection in areas outside the shops, with a pilot to introduce a duty free goods delivery area at the arrival hall at Busan port set to commence in 2023 in a bid to stimulate domestic duty free sales.

In a seismic move, retailers will be permitted to utilise all online sales platforms, including South Korean e-commerce and online shopping marketplaces such as Naver and Coupang, alongside virtual spaces/the metaverse.

Small and medium-sized enterprises can join forces to jointly operate online duty free shops.

Fifteen new tasks

Currently, online purchases of duty free items can be made at downtown shops via the websites of retailers but online purchases at duty free shops in the departure and arrivals areas of airports has been prohibited to date.

While the new measures pave the way for an online reserve and collect option on departure, it is understood that an arrivals duty free pickup facility remains unavailable pending the outcome of the aforementioned trial at Busan port next year.

A Korea industry source told TRBusiness: “The actual implementation [of the measures] will need a wide round of discussions with many stakeholders especially [given] the diverse positions of different duty free operators.”

The new measures, which also covers the purchase of alcohol using ‘smart ordering’ methods at downtown duty free online stores for collection at departure halls, covers 15 key tasks.

These were unveiled by KCS Commissioner Yoon Tae-Sik at a meeting held at Shinsegae Duty Free’s downtown shop in Seoul’s Jung-gu district last week (Wednesday 14 September).

These measures fall under three objectives: improvement of public convenience; support for the stabilisation of duty free shop management; and strengthening logistics competitiveness through regulatory innovation.

A possible 50% reduction in retailers’ 2022 patent fees (in consultation with the Ministry of Strategy and Finance) are among a flurry of other instruments covering improved patent fee terms; an extension of the policy to offload surplus duty free stock through domestic channels; a reduction of customs duties on duty free goods sold in the domestic market; and reduced inventory burdens regarding duty free items prior to their arrival at bonded warehouses.

In a notice seen by TRBusiness, KCS Commissioner Yoon said: “In a situation where the duty free shop industry is experiencing difficulties due to the impact of Covid-19, rising foreign exchange rates and intensifying international competition, this measure is in line with recent positive policy changes (raising the duty free limit, abolition of PCR before entering [from] overseas).”

He adds that the measures ‘expect to become a catalyst for the revitalisation of the duty free industry’.

Twelve duty free shop operators, including Hotel Shilla, Lotte Duty Free and Shinsegae Duty Free, are understood to have been present at the meeting in downtown Seoul.

Questions over the detail

According to the KCS, duty free industry officials have reportedly displayed ‘great interest’ in the measures to strengthen publicity for duty free shops and increase sales through online and e-commerce platforms.

“We are extremely glad that the government continues to support the industry by providing the measures,” a Lotte Duty Free spokesperson told TRBusiness.

However, the mechanics of implementing such a system and the rules around its governance could likely be complex.

At present, South Korea’s duty free operators, which include juggernauts Lotte Duty Free, The Shilla Duty Free and Shinsegae Duty Free, each possess their own online stores where they sell goods from their respective downtown shops.

Many have taken advantage, aided by a South Korean government decision effective from July that allows online Korean domestic duty free product sales to overseas customers  that are not entering the country.

“Now the government has permitted to sell airport goods online, we have no idea on who will be in charge and which channel will be used,” another Korean industry source told this publication.

“Case one: each international airport/port runs their own online channels. Case two: each duty free operator will use their own online channel to sell airport goods. This is a guess and it could be something else. One thing is clear, players are likely to pay fees.”

South Korea lifted quarantine restrictions for fully vaccinated arriving international travellers holding valid negative test certificates on 1 April and this month ended the requirement of travellers to undergo a pre-departure Covid-19 test [though passengers are still required to take a PCR test on arrival – Ed].

Since the outbreak of Covid-19, the South Korean government has acted with a slew of policy reforms to help duty free protagonists weather the storm of Covid-19.

These have included reducing shop rental fees, allowing retailers to offload domestic stock through duty free channels, giving the green light to non-landing flights, and abolishing the $5,000 ceiling on outbound purchase limits.

As reported, duty free revenue lifted by 15% in 2021 to KRW 17.8 trillion/US$14.7 billion, of which approximately 95% was sales to foreign customers – mostly Chinese daigou shuttle traders.

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