S. Korea DF&TR operators buoyant on 2022 outlook

By Luke Barras-hill and David Hayes |

Duty free sales from non-landing flights have offered an important crutch in a climate of severe business pressure.

South Korea’s duty free operators are expecting further sales growth in 2022 after an encouraging first quarter, TRBusiness has learned, as the government begins to fire up the nation’s large inbound travel market.

On 1 April, South Korea lifted quarantine restrictions for fully vaccinated arriving international travellers holding valid negative test certificates.

The decision to introduce quarantine exemptions had coincided with a spike in domestic Covid-19 Omicron cases across the country.

Though today (Monday 30 May), South Korea reported 6,139 new Covid-19 cases – a considerable slowing compared with daily case rates at the beginning of the year – and nine fatalities, according to the Korea Disease Control and Prevention Agency (KDCA). The total number of confirmed cases stood at 18,086,462.

Kim Tae-Ho, the newly appointed President of the Korea Duty Free Shops Association, spoke to TRBusiness in the May e-zine.

SALES CLAWBACK IN Q1

In conversation with sources for the May e-zine, TRBusiness heard that South Korea is expected to encourage growing numbers of inbound foreign travellers to book trips to Seoul and other popular Korean destinations for summer vacations and visits later this year.

Outbound South Korean travellers have also begun to book overseas trips of late, as other countries lift Covid-related quarantine restrictions for inbound foreign visitors.

South Korea’s duty free sales have displayed ‘gradual improvements’ during Q1 2022, Kim Tae-Ho, the newly appointed President of Korea Duty Free Shops Association (KDFA), told TRBusiness in a recent interview.

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

“Although the pandemic has not ended, the demand for international travel is expected to recover which will increase sales of Korean duty free [operators] compared to last year,” commented Kim.

“However, I don’t think the sales structure [reliant on Chinese daigou trading] will change radically.”

Indeed, South Korea’s duty free operators are likely to continue to rely on daigou sales for a large share of revenue until international business and leisure travel begins to normalise.

A clearer picture of that trajectory is expected to emerge in the coming months, as foreign visitors eye trips to South Korea’s popular destinations such as Seoul and Jeju Island, while outbound South Korean travellers begin to confirm bookings for overseas summer vacations.

“Although the pandemic may not end within this year, it is expected that the duty free market, especially [South Korea’s] domestic market, will recover significantly,” explained Kim.

“Therefore, we will focus on strengthening the competitiveness of our online businesses, improving sales infrastructures to enhance consumer convenience, establishing systems to respond to digital convergence, and developing solid partnerships between stakeholders such as brands, airports and suppliers.”

Kim, who is also Vice President of Hotel Shilla Co Ltd’s Korea travel retail division, explained that cooperation among all duty free stakeholders is needed to ensure the industry’s post-Covid recovery at a time when competition for high-spending Chinese customers is intensifying amid the growth of China’s Hainan duty free market.

“My biggest goal [as President of KDFA] is to ensure the rapid growth of the Korean duty free industry and to secure its global competitiveness amid Covid-19,” he continued. “In doing so, I will focus my effort on preserving Korea’s number one status in the global duty free market.”

CALLS FOR MORE GOVERNMENT SUPPORT

While Korean duty free operators hope to see growth in downtown and airport duty free revenues this year, a continuance of wide-ranging government support measures and reasonable concession contract arrangements for new duty free shop licences at Incheon International Airport are needed to ensure the recovery and future prosperity of the domestic duty free industry, according to Kim.

The government’s help has played an important part in sustaining the duty free sector during the past two years, as the global Covid crisis brought South Korea’s international travel market to a virtual standstill.

As a result, the country’s retail operators have temporarily closed or experienced sluggish trading downtown.

Concession contracts at Incheon Terminal 2 are set to expire in 2023, with bidding tipped to open this year.

Airport duty free retailers have been forced to cut costs in addition to operating on reduced opening hours due to the paucity of footfall to shops.

“The government has provided a wide array of policy support to help the duty free industry overcome the unprecedented difficulties brought about by the pandemic,” affirmed Kim.

“This includes reducing rental fees for duty free shops as well as allowing domestic sales, introducing no-destination [duty free shopping] flights and abolishing [outbound] duty free purchase limits for domestic customers.

“I am very grateful for this support. Nevertheless, in order for the duty free industry to overcome the immediate difficulties and strengthen its global competitiveness, I believe additional support is required. In this regard, I would like to ask for the continuous support of the government.”

Kim Tae-Ho, President, KDFA: “We will focus on strengthening the competitiveness of our online businesses, improving sales infrastructures to enhance consumer convenience, establishing systems to respond to digital convergence, and developing solid partnerships between stakeholders such as brands, airports and suppliers.”

APPETITE TO LIFT DUTY EXEMPTION LIMIT

One measure that South Korean duty free operators would like authorities to pursue is upping the existing US$600 duty free exemption limit, which has remained unchanged for the past eight years.

This limits the value of South Korean travellers’ outbound duty free purchases that they intend to bring back with them when they return home from travelling.

“In 2019, the duty free purchase limit for outbound Korean nationals was lifted from US$3,000 to $5,000, and it has been decided this year to abolish the limit entirely,” noted Kim.

“I believe it will encourage Koreans to purchase luxury duty free items and boost the sale of global luxury brands. However, since there has been no change in the import duty allowance, which remains at $600, it’s difficult to expect any immediate increase in customer transactions.”

South Korea’s downtown duty free stores and online pre-order duty free services have handled the bulk of duty free sales since the Covid pandemic began more than two years ago.

Various operators have given up their airport shop concessions or are not operating certain outlets at present to avoid incurring losses due to the large reduction in international flights and passenger traffic.

With the resumption of normal international travel seemingly in sight, duty free operators stand poised for Incheon International Airport Corporation to reveal plans for its delayed T1 liquor/tobacco and forthcoming T2 concession tenders, which as reported could be offered this year.

IIAC is understood to have appointed consultants to advise on the preparation of T1 and T2 concession tender documents, TRBusiness understands.

However, further official information on the tender timetable or other details have not been forthcoming as yet and IIAC has, to date, not responded to TRBusiness’ request for comment.

“I am aware that it has not yet been decided as to how to proceed with the bidding and discussions are underway considering various perspectives,” said Kim.

“Given that rents in Incheon Airport have placed a huge burden on duty free shops, I hope that Incheon Airport will cut rental fees to revitalise the airport itself and ensure co-existence with duty free businesses.

“Since Incheon Airport is an important place for domestic duty free businesses, we [Korean duty free operators] will participate actively in the bids.”

Click here to read more analysis of South Korea’s duty free market inside the TRBusiness May e-zine.

Main image: Chanel, operating under the auspices of Hyundai Department Store Duty Free, made its comeback at Incheon T1 last year after a six-year absence.

Europe

MAN 'very sorry' after power spike cancels flights

Manchester Airport (MAN) Managing Director Chris Woodroofe has issued an apology to passengers...

International

Vantage rebrands as airports manager and investor looks to the future

Vantage Airport Group (Vantage) has announced a corporate rebrand to Vantage Group. The...

International

Arnaud Lagardère reinstated as Chairman and CEO of Lagardère

On the proposal of Jean-Christophe Thiery, who had been appointed to the position on a...

image description

In the Magazine

TRBusiness Magazine is free to access. Read the latest issue now.

E-mail this link to a friend