Korea’s major duty free operators are facing a bleak outlook for their recovery from the pandemic, although their earnings in the second quarter improved from a year earlier.
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Three of the four largest market players reported a surge in their respective year-on-year sales for the April-June period. Hyundai Department Store Duty reported 165 percent increase, The Shilla Duty Free reported 92.7 percent and Shinsegae Duty Free reported 80.4 percent.
While the No. 1 market player, Lotte Duty Free, has not announced its quarterly results yet, its year-on-year sales are estimated to have expanded by 40 percent.
Regarding operating profits during the same time period, those of The Shilla Duty Free and Shinsegae Duty Free went into the black.
Hyundai Department Store Duty Free reported an operating loss, but it still improved from an US$15.4 million loss to a US$6.6 million loss.
“Nevertheless, these improved performances lag behind the earnings in the pre-pandemic era in 2019 and therefore can send a misleading signal as if the industry is on the recovery track,” a source said.
Another source attributed the improvement in the quarterly earnings to the firms, slimming down their businesses to better counter the prolonged COVID-19 pandemic.
The notable measures included Lotte and Shilla closing their duty free shops at Incheon International Airport, possibly the most lucrative location for both companies.
“Taking these facts into account, it would be nonsense to predict the duty free shopping sector will be revitalised soon,” the third source said.
The source speculated it will take more than two years for the industry to normalise, noting the outbreak of the Delta variant in early summer put the brakes on economic recovery.
Before the outbreak, duty free operators nationwide saw their combined monthly sales reaching more than US$1.2 billion for April and May. In particular, foreign shoppers accounted for 95.5 percent of the total number of buyers.
The second quarter was also when optimism was growing for a “travel bubble,” as the vaccination program here was picking up pace and the government was facilitating discussions to open borders with highly vaccinated countries.
“You can see how the Delta variant turned the hope for recovery upside-down suddenly,” the source said.
Against this backdrop, the companies are coming up with different strategies for survival.
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Lotte updated its website and app to attract domestic online consumers.
Shinsegae is eyeing Southeast Asia by bolstering its marketing campaign on Shoppee, the largest online shopping platform in the region.
Shilla made an agreement with Hainan Tourism Investment Duty Free for a joint venture in China’s resort island of Hainan.
The island has emerged as a key global duty free market in the pandemic era, with an increased number of Chinese tourists spending time there as an alternative spot amid overseas travel restrictions.
(Source: Korea Times)