Amid ongoing restructuring in city duty-free shops due to poor market conditions, it was confirmed on the 3rd that major luxury brands are leaving city duty-free shops one after another. The industry is expressing concerns that the departure of luxury stores will further reduce the competitiveness of city duty-free shops, which are already suffering from low revenue.
According to related industries, Gucci closed its stores at the Shilla Duty Free in Seoul and Lotte Duty Free in the World Tower as of the end of March. On the same day, Cartier also closed its store at Lotte Duty Free in the World Tower. As a result, Gucci now has three city duty-free stores remaining, while Cartier has two.
In December last year, Van Cleef & Arpels closed its stores at the Shilla Duty Free in Seoul and Lotte Duty Free Headquarters, completely withdrawing from city duty-free shops.
A representative from Lotte Duty Free said, "Store operations were terminated in accordance with the policies of the businesses involved," and noted, "The usage of the space for those stores has not yet been determined." According to the industry, other luxury brands such as Tiffany & Co. and Louis Vuitton are also said to have notified their withdrawal from city duty-free shops.
Industry analysis suggests that alongside the sluggish performance of domestic duty-free shops, luxury corporations are pushing for their withdrawal from city duty-free shops as part of a premiumization strategy.
Earlier, in January 2022 during the COVID-19 pandemic, French luxury brand Louis Vuitton stopped operations at its Lotte Duty Free store in Jeju, marking the beginning of luxury brands' exit from city duty-free shops.
At that time, Louis Vuitton set a policy to withdraw from city duty-free shops, focusing instead on airport duty-free shops, stating that the sales concentrated through Chinese bag sellers (daigong) were damaging to the brand's value. Following this, it ceased operations at the Shilla Duty Free in Jeju and Lotte Duty Free in Busan. In March of the same year, Chanel also halted operations at city duty-free shops in Busan and Jeju, while brands such as Rolex, Chloe, and Valentino exited city duty-free shops.
The decline in demand for luxury items is also pointed out as a factor for the poor revenue of city duty-free shops. In the case of Gucci, which closed two city duty-free shops this time, it is reported that revenue at the Shilla Duty Free in Seoul and Lotte Duty Free in the World Tower last year decreased by 84% and 42%, respectively, compared to the previous year.
City duty-free shops were once compared to a "goose that lays the golden eggs," as Chinese group tourists swept up cosmetics and luxury goods. However, they are now facing a survival crisis with the absence of Chinese visitors since COVID-19.
Total sales of domestic duty-free shops peaked at 24.8586 trillion won in 2019 before shrinking to 14.2249 trillion won last year. Last year, four duty-free companies, including Lotte, Shilla, Shinsegae, and Hyundai, all reported operating losses. It is known that city duty-free shops account for more than 80% of total sales.
Naturally, the number of city duty-free shops is also decreasing. The number of city duty-free shops that was 22 in 2019 has reduced to 16 last year. So far this year, following the closure of Shinsegae Duty Free in Centum City, Busan, in January, the Hyundai Department Store will also close its Dongdaemun location in August. Looking only at Seoul, the number of city duty-free shops, which was 13 in 2019, will reduce to 6 by August.
Even city duty-free shops that are still operating have begun to implement austerity measures, such as reducing their floor space. In the case of Lotte Duty Free, it is currently stopping all transactions with daigong due to low revenue and is lowering the proportion of wholesale sales.
With the continued exodus of luxury brands from city duty-free shops, industry concerns are growing that the competitive edge of city duty-free shops will further weaken. A representative from a duty-free company said, "I understand that major luxury brands are considering withdrawing from city duty-free shops to concentrate on airports and Chinese duty-free shops," adding, "Duty-free sales are concentrated on cosmetics and luxury items, so if luxury stores leave, it is inevitable that their performance will be impacted." They further added, "Duty-free operators are in a situation where they are doing everything possible to prevent these closures."