Korean duty-free sales in 2023 did not continue the post-pandemic recovery path seen up to 2022. Instead, they went backwards despite more international visitors coming to the country.
Data from the Korea Duty Free Shop Association indicate that travel retail revenue fell by 23% to 13.8 trillion Korean won last year, roughly $10.4 billion. This is well off the 2019 high of $18.8 billion and a worry for major downtown duty-free retailers like Lotte and Shilla.
According to the Korean Economic Daily, both companies are in loss-making territory, as are some smaller rivals. A key piece missing in the duty-free puzzle is the high-spending Chinese traveler.
Arrivals data show that PRC mainlanders have been shunning the country given that Covid-related tit-for-tat visa restrictions were in place until as late as March 2023. Korea Tourism Organization figures indicate that about 570,000 Chinese tourists visited South Korea in the first half of 2023, a long way off the 2.8 million seen in the first half of 2019. However, numbers in the third quarter reached 750,000, so a recovery may be on the way.
Lotte Duty Free, which had already been internationalizing its business in Singapore and Australia during Covid, has now stepped up its focus—with Vietnam and Japan in its sights.
From Nendoroid to Inishie Shochu
Through its online direct-purchase mall—Ginza Japan Direct Purchase (formerly called LDF Buy and launched in June 2021)—the retailer is adding new brands with a focus on animation figures. Nendoroid plastic figurines, typically depicting characters from anime, manga or video games, are selling like hotcakes on Lotte’s direct platform in Japan. Newcomers range from Bearbrick, a bear-shaped collectible figure, to figurines from listed Chinese manufacturer Pop Mart.
Daehyun Ahn, head of Lotte Duty Free’s new growth business division, commented: “We have prepared a variety of products and events, including premium figures, to capture the demand for direct shopping in Japan.”
Premium alcohol brands such as sake, shochu, plum wine, and awamori are also being introduced, including some rare editions like Inishie Tenon 375 Honjo vintage sake, the 35-year-aged Inishie 1984 Batsugun Barley Shochu, and the umami-flavored Inishie Matsufuji Umeshu Plum Wine. Other popular items include Senka Perfect Whip, Konjac Jelly, and Rest Time.
In total about 730 products are now available on Lotte’s Ginza Japanese direct shopping service. They are all sourced directly from Lotte Duty Free’s Tokyo Ginza branch, with an average “30% lower price than that of Japanese direct purchase sites” says Lotte, despite them not being sold duty-free. The company says it will introduce other categories, including fashion watches, in the future.
Vietnamese boost
Meanwhile, in Vietnam, Lotte Duty Free Shop has inked a memorandum of understanding (MoU) with Korean travel agency Mode Tour to revitalize the Vietnamese tourism market where the retailer has a presence.
The two companies plan to expand customer contact points by combining duty-free shopping and overseas travel at a time when more Koreans are visiting Vietnam.
A joint marketing effort will target the locations of Da Nang, Nha Trang, Phu Quoc, and Da Lat. Lotte Duty Free first entered the Vietnamese market at Da Nang Airport in 2017, followed by other gateways, including the Nha Trang Airport in 2018 and Hanoi Airport in 2019.
In 2023, year-over-year sales at Lotte Duty Free’s Vietnam business increased by 351% with sales to Korean tourists reaching approximately 60% of the total.
Lee Woo-yeon, head of the Southeast Asia business department at Modetour, said: “Vietnam is the most popular travel destination for Korean travelers, and we expect to be able to provide better services through this agreement with Lotte Duty Free. We will (also) expand our services at Lotte Duty Free stores in Singapore and Australia.”
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