Lotte Duty Free halts transactions with Chinese personal shoppers to boost profits

Lotte Duty Free announced that it will completely halt transactions with Chinese personal shoppers (Dai-gong). Chinese personal shoppers account for about half of Lotte Duty Free's sales and are a significant player. In the retail industry, it has been assessed that this decision was made to achieve profitability despite accepting a reduction in scale.

According to the retail industry on the 12th, Lotte Duty Free notified major Chinese personal shoppers at the end of last year that it would cease duty-free product sales starting this month. Lotte Duty Free is the first in the duty-free industry to declare a halt to transactions with Chinese personal shoppers.

Chinese personal shoppers are corporate consumers who purchase duty-free products in large quantities in Korea and distribute them to China and Southeast Asia. Their activities became active after the 2017 THAAD conflict, when the Chinese government banned group tours to Korea. From the perspective of duty-free shops, they could easily manage inventory and significantly increase sales through Chinese personal shoppers, classifying them as key customers.

However, the recent halt in transactions between Lotte Duty Free and Chinese personal shoppers is a decision made because the burden of commission for referrals has become too great. The referral commission acts as a type of rebate given to attract Chinese personal shoppers. According to the duty-free industry, the referral commissions paid by duty-free shops surpassed 4 trillion won as of 2022.

In the retail industry, it is believed that Lotte Duty Free's decision to halt transactions with Chinese personal shoppers was made proactively as it prioritized revenue management as its top business metric. Kim Dong-ha, the newly appointed CEO of Lotte Duty Free, noted in his New Year's address, 'Now is the time to promote profitability-centered business activities.'

Meanwhile, attention is being drawn to whether such movements will spread throughout the industry. A duty-free industry official stated, 'All three major duty-free companies are unable to avoid deficits and there are many assessments indicating they have surpassed manageable levels,' adding, 'We are watching to see if other companies will follow Lotte Duty Free's lead or if a situation will arise where Chinese personal shoppers shift to other duty-free stores.'