As changes in tourist spending patterns prolong the slump in Korea's duty-free industry, The Shilla Duty Free and Shinsegae Duty Free are expected to have remained in the red in the fourth quarter of last year, unlike Lotte Duty Free and Hyundai Duty Free, which earlier managed to return to profit. The continued burden of rent for duty-free zones at Incheon International Airport, awarded in past bids, is to blame. The two companies took the drastic step of returning their airport duty-free concessions last year, but they still have to keep operating for several months this year.
According to the securities industry on the 7th, The Shilla Duty Free and Shinsegae Duty Free were also projected to post operating losses in the tens of billions of won in the fourth quarter of last year. Both companies are logging losses for six consecutive quarters. The Shilla Duty Free has already accumulated 109.3 billion won in operating losses over five straight quarters from the third quarter of 2024 to the third quarter of last year, and Shinsegae Duty Free piled up 61.1 billion won in losses over the same period.
By contrast, Lotte Duty Free and Hyundai Duty Free returned to profit last year. Lotte Duty Free swung to a profit by recording 15.3 billion won in operating income in the first quarter of 2025, followed by 6.5 billion won and 18.3 billion won in the second and third quarters, respectively. Hyundai Duty Free posted 3.2 billion won in operating losses in the first and second quarters of 2025 but turned profitable in the third quarter with 1.3 billion won in operating income.
The reason only The Shilla Duty Free and Shinsegae Duty Free have been slow to improve among Korea's four major duty-free operators is the ongoing burden of rent for Incheon Airport duty-free zones awarded in past bids. The Shilla Duty Free and Shinsegae Duty Free signed concession contracts in 2023 to pay rent to Incheon International Airport Corp. pegged to passenger traffic. But as duty-free spending failed to rise in line with the increase in airport users due to shifts in foreign tourists' consumption patterns and weaker purchasing power, they have been facing monthly losses of 6 billion to 8 billion won.
To overcome the deteriorating business environment, Shinsegae Duty Free carried out its first-ever voluntary retirement program in Nov. 2024 and closed its downtown Busan store in January last year. The Shilla Duty Free also implemented voluntary retirement in April last year.
Even so, with no improvement in conditions, the two companies submitted an adjustment proposal to Incheon International Airport Corp. last year seeking a 40% rent cut, but it was rejected. In the end, The Shilla Duty Free and Shinsegae Duty Free surrendered the business rights to the DF1 (perfume and cosmetics) and DF2 (perfume, cosmetics, liquor, tobacco) zones they had been operating in September and October last year, respectively, accepting penalties totaling 190 billion won.
Despite returning the concessions, The Shilla Duty Free is contractually required to operate its Incheon Airport duty-free shops until Mar. 17 this year, and Shinsegae Duty Free until Apr. 28. During this period, they must continue to shoulder rent tied to airport passenger traffic.
The corporation is now proceeding with re-bidding for the DF1 and DF2 duty-free zones vacated by Shilla and Shinsegae. Rents have been set 5.9% and 11.1% lower, respectively, than in the public tender in 2023. All four major domestic duty-free operators took part in a re-bid briefing session held on the 18th of last month. Among overseas operators, Switzerland's Avolta (formerly Dufry) was the only attendee.
Meanwhile, the average ticket size (per-capita purchase) of foreign tourists visiting duty-free shops has dropped sharply compared with the past. According to the Korea Duty Free Shops Association, the number of foreign tourists who visited Korea last year surpassed 18.5 million. By contrast, duty-free sales in Korea totaled 11.4145 trillion won in January–November last year, down 12% from a year earlier.
The foreign tourist average ticket size, which stood in the mid-1 million won range in 2024, fell below 1 million won from April this year and is now hovering in the 700,000 to 800,000 won range. That is because visitors to Korea tend to favor value-for-money and experiential shopping at places like Daiso and Olive Young, and when buying luxury goods, they increasingly visit department stores instead of duty-free shops due to the weak won.
Park Jong-ryeol, an analyst at Heungkuk Securities, said, "Despite positive factors such as an increase in foreign arrivals, the scope for improvement in duty-free operators' earnings appears limited, given weaker traveler preference for duty-free shops and reduced price competitiveness due to the weak won."