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Korean duty free sales in May underline key market pressures

Latest figures for the Korean duty free market – historically the world’s biggest – reflect a complex and changing landscape.

May results from the Korea Duty Free Association reveal that the number of foreign purchasers increased, but sales to them decreased.

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That suggests a continued erosion of the high-commission daigou business in response to Korea Customs Service pressure that began in late 2022 (and devastated January sales) as well as short supply of certain popular items, according to a senior Korean industry source.

The total market (excluding inflight sales) in May generated revenues of KRW1,156,773,602,776 (USD878.8 million), down -1.5 percent from KRW1,174,845,802,868 (USD892.5 million) in April.

The real story though lies with the contrasting fortunes of sales to foreigners (over recent years, particularly during the pandemic, almost all Chinese and most of them daigou traders) and Koreans.

Lotte Duty Free and its peers are working hard to stimulate the airport retail sector as the Korean outbound travel recovery quickens. Pictured above is the retailer’s recently revamped Gimhae International Airport store in Busan and below the new-look Gimpo International Airport in Seoul. Source: Lotte Duty Free

Sales to foreigners in May eased -2.8percent to KRW938,114,150,258 (USD702.7 million) compared with KRW965,375,609,496 in April (USD733.4 million). May sales represented an even sharper -8.5 percent softening compared to the KRW1,025,713,720,561 (USD779.2 million) recorded in March.

The latest sales bear stark comparison to those of November 2022, just before the change in the Korea Customs Service attitude to the daigou sector which has overwhelmingly dominated the market in recent years, particularly during the pandemic.

May’s figures represent a -27.9 percent fall compared to last November’s KRW 1,301,011,165,871 (USD988.4 million).

Conversely, the number of foreign customers climbed +16.1 percent month-on-month in May to 510,016. This represents an +121.1 percent uplift over last November’s 230,626.

Korean consumer market continues recovery

Sales to Korean customers rose steadily in May to KRW218,659,452,518 (USD166.1 million), a +4.4 percent increase over April and by far the highest number since the pandemic and its related travel constraints eased.

Korean customer numbers also continued their resurgence, rising +4.1 percent to 1,244,934.

Downtown dominance

The total South Korean market by channel was dominated by the downtown sector, which generated KRW952,453,103,136 (USD723.6 million) in revenue for May, an 82.3 percent market share.

Departures duty free sales reached KRW143,197,586,538 (USD108.8 million), or 12.4 percent of the market. Domestic duty free and a small arrivals duty free business accounted for the balance.

The influence (or not) of the Daigou sector can be seen in the contrasting make-up of the downtown and departures duty free sectors. For downtown, foreigners accounted for KRW873,297,607,050 (USD663.4 million) or 91.7 percent of the total with Koreans representing just 8.3 percent.

However, when one looks at departures duty free, Koreans represented the slight majority with a very similar level of sales to downtown at KRW 79,873,828,748 (USD60.7 million) or 55.8 percent, ahead of foreigner sales which reached KRW63,323,757,790 (USD48.1 million or 44.2 percent).

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Downtown, Korean customers numbers reached 265,608 compared to 152,035 foreigners in May but despite being in the majority, their overall spending paled compared to those of foreign customers.

“On the whole, the Korean Duty Free market seems to be stagnating due to the decrease of daigou trade and the Chinese government’s persisting restrictions on group tourism to Korea,” a senior local source told The Moodie Davitt Report.