Daigou business continues to thrive for Lotte Duty Free in Korea as made evident by TRBusiness’ recent trip to the company’s main duty free store in Myeongdong, Jung-gu where 500-plus traders were spotted queuing outside, prior to the shop opening.

Purchases made by daigou traders currently account for around 52% of Lotte Duty Free’s total sales, according to the company.

When TRBusiness spoke to Korean retailers earlier this year about the introduction of the new e-com law introduced in January, they reported that their respective businesses had been unaffected.

When TRBusiness asked Lotte Duty Free’s Managing Director for Marketing, Jung-hyun Kim if this was still the case for Korea’s No1 travel retailer, he said that sales had remained steady, but that there had been a perceptible shift in the number of daigous registering as corporate entities.

“There are two kinds of daigous in Korea; one is a large-scale reseller with corporate registration and the other one is a small-scale reseller.

The first part of this interview can be found here.

“The main purpose of the introduction of China’s ecommerce law was to make daigous register, so they actually pay tax. After the introduction of the new law, the small scale resellers who used to not pay tax have decreased. The number of the large-scale resellers has increased.

“Diagou is a recognised industry in China. So since this daigou business is already industrialised, my guess is that it will continue to thrive.”

According to Lotte, its main Myeongdong duty free store, where it attracts a record number of daigou traders, is the single most successful duty free store in the world.

Providing just one example, Fenty Beauty (a brand launched by global pop-star Rihanna, owned by LVMH) is currently targeting monthly sales of $100m at the store; both inside its physical footprint and online.

L to R: TRBusiness Editorial Director, Charlotte Turner interviewed Jung-hyun Kim (middle) at Lotte Duty Free’s Seoul HQ earlier this month. He was joined by Seokin (Ian) Park, from Lotte’s Public Relations team.

However, while business from daigou remains steady, it is no secret that the trading environment in Korea has grown much tougher in the last couple of years, as explained by Kim in part one of this interview.

Retailers had reason to be more optimistic in September when the South Korean Government legislated to raise the duty free departure purchase limit for Koreans from US$3,000 to US$5,000.

This means the total duty free purchase allowance per person, factoring in an arrivals purchase limit of $600, increases from $3,600 to $5,600.

However, the amendment has not affected the current tax exemption limit, which remains at $600.

A duty free pick up counter at Incheon International Airport’s Terminal 1, where daigou traders often congregate to sort through their purchases. Source: TRBusiness.

“The Ministry of Economy and Finance is still studying raising the tax exemption limit. It will continue to have a close watch on how arrival shops run and will likely make a decision at the end of this year,” said a source in Korea.

TRBusiness asked Kim if the lift in September could have a meaningful impact on Lotte’s business.

Daigou shoppers sort through their recent purchases on the floor of Incheon Airport’s Terminal 1, next to holdalls full of duty free goods ready for transportation to their customers abroad. Source: TRBusiness.

“I actually think there is progress in terms of the institution. There was no lifting of the tax exemption limit so I think there is not much influence on the duty free industry.

“The lifting of the purchase limit is the first step. The second step will happen soon…

“China’s tax duty free limit is $5,800 we think. So there is a chance for the purchase limit to lift because compared to other countries, our duty free limit is still relatively low.”

When asked when he expected another lift in the limit, he was reluctant to comment too specifically ‘on political things’.

Lotte Duty Free’s Liquor & Tobacco store at Incheon International Airport, Terminal 1. Source: TRBusiness.

He preferred instead to talk about the company’s shift in resources and investment towards improving its ecommerce platform in all territories, with the aim of making it more agile and efficient.

Online sales now represent around 25% of Lotte’s total business – up from around 8% in 2013– and this continues to grow. TRBusiness asked Kim what this means for the future of company’s bricks & mortar stores in DF&TR.

“We are well aware that the shift from the offline channel to the online channel is the mainstream nowadays and surprisingly, for the big three [Korean travel retailers] – Shilla, Shinsegae and Lotte – of their combined sales, online sales account for 40% in a specific month.

“Because we do not separate the offline and offline marketing, we try to develop our customer experience through both channels so we can take advantage of synergies. We are going to digitalise our offline stores so we can offer the same experience that the customers have online.”

Interesting the integration of the two channels will actually help the company become more efficient in terms of restocking.

Lotte Duty Free’s main Seoul downtown duty free store is located in Myeongdong.

“Some brands have limits on how many products we can sell online,” said Kim. “We are also trying to integrate the stock between offline and online.

“In the Korean duty free market nowadays if we have stock available, it’s sold right away so we have to negotiate with the brands so we can have more products and more stock available.”

In order to prevent stock running out too frequently – leaving customers feeling understandably frustrated – Lotte has been negotiating with many of the most popular luxury brands.

“We have been building strategic business partnerships with certain brands (many high-end big brands),” he said.