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South Korean duty-free operators ‘desperate’ amid protracted pandemic

Stung by the protracted new coronavirus outbreak, South Korean duty-free operators are struggling to overcome the industry-wide slump with belt-tightening measures, including increasing the number of closing days at some outlets in major local cities and cutting their overseas operations.

Industry leader Lotte Duty Free began closing its outlets at Coex in southern Seoul and the southeastern port city of Busan every Sunday and Monday from this month.

In April, Lotte decided not to open the two stores every Monday, as the number of customers sharply declined due to the Covid-19 pandemic. The latest move came as a resurgence in virus cases made it difficult to expect imminent business normalisation.

Since late May, Shinsegae Duty Free has closed its outlets in Seoul’s upmarket southern district of Gangnam and Busan every Sunday and Monday.

Hit by the virus outbreak, South Korean duty-free operators have suspended the operations of their outlets at major airports either partially or wholly.

The pandemic has also dealt a blow to duty-free operators’ overseas business. Local duty-free shops had rushed to expand their foray into overseas markets in recent years in a bid to reduce their reliance on Chinese visitors and generate decent profits.

Lotte Duty Free plans to close its duty-free stores in Jakarta and Bangkok in the second half and liquidate its units in Indonesia and Thailand.

In the first half, Lotte withdrew its business from Taiwan. The number of Lotte Duty Free overseas units will fall to 12 outlets in six countries if it completes the closure of the two units in Southeast Asia.

Some improvement in sales may give some solace to local duty-free operators, but their revenues remained far below the pre-pandemic level.

Combined sales at duty-free shops in South Korea in July rose by 12.4 per cent from the previous month, as small Chinese vendors returned to scoop up duty-free goods, according to industry data.

It marked the third straight month of gains since the figure fell below 1 trillion won for the first time in four years in April.

The number of visitors to local duty-free units topped 500,000 in July, marking the first time in four months.

“Duty-free sales are tipped to further increase in the third quarter, compared with three months earlier, on the back of the government’s eased restrictions on sales channels of duty-free goods,” said Na Eun-chae, an analyst at Korea Investment & Securities Co.

To prop up the pandemic-hit segment, the government decided in late April to temporarily permit sales of duty-free goods via local sales channels.

It also allowed registered foreign buyers to receive duty-free products at their home countries without the need to visit South Korea.

Meanwhile, major duty-free players are expected to take part in the bidding for new business licenses at the country’s main international airport as they set sights on long-term recovery in the post-Covid-19 era.

The operator of Incheon International Airport, the country’s main gateway west of Seoul, will close the bidding for new duty-free shop business licenses at six sections, including cosmetics, liquor and tobacco, at the airport’s Terminal 1, on Tuesday.

In March, Lotte Hotel, Hotel Shilla and Hyundai Department Store Duty Free won duty-free business licenses at Terminal 1, but Lotte and Shilla gave up the business rights in April amid faltering sales.

As the airport operator failed to pick new entities, Lotte and Shilla have continued to run their business after extending their licenses.

Industry watchers expect major duty-free operators to participate in the bidding, as the airport operator has proposed a sharp cut in lease fees.

“Earnings are still not good, but we are considering participating in the bidding (for the long-term perspective), taking into account the post-pandemic situation,” said an official at a local duty-free operator.

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