Marking its 10th anniversary this year, Shinsegae Duty Free (Shinsegae DF) is shifting from a past expansion strategy to a profitability-first management policy and is poised to swing to an operating profit. As a latecomer in the industry, Shinsegae Duty Free has expanded its presence over the past decade by growing its footprint around key hubs such as Myeong-dong, Incheon Airport, and Gangnam. But as the duty-free market deteriorated during COVID-19, it carried out a sweeping business restructuring and now aims to build a management system centered on core stores and profitability rather than a market share race.
According to the industry on the 21st, Shinsegae Group's duty-free business dates back to 2012. That year, Shinsegae Group acquired 81% equity in Paradise Duty Free for 93.1 billion won through Josun Hotel, and in 2013 opened the Busan online duty-free shop to gain operating experience in the sector. At the time, however, the domestic duty-free market was split between Lotte Duty Free, launched in 1980, and The Shilla Duty Free, launched in 1986, leaving Shinsegae as a latecomer with limited presence.
The real starting point for Shinsegae Duty Free was 2015. In April that year, Shinsegae Group established Shinsegae DF as a dedicated duty-free subsidiary, and in September opened its Incheon Airport store, fully entering the offline duty-free business. Participating in the 2015 competition for downtown duty-free licenses in Seoul, Shinsegae Duty Free won a license by making a bold move to use part of the new wing of the Shinsegae Department Store main store in Myeong-dong as a duty-free shop, and in 2016 opened the Myeong-dong store, securing a downtown base. It also established an offline duty-free store at the Busan Shinsegae Department Store Centum City Mall.
Shinsegae Duty Free then opened its Incheon Airport Terminal 2 store and Gangnam store in 2018, building a store network that links the airport and the city center. As a latecomer, it chose to focus on key commercial districts with high inflows of foreign tourists and high average spend per customer, rather than nationwide expansion. Powered by this expansion, Shinsegae Duty Free's sales surged from 310.1 billion won in 2016 to 1.1647 trillion won in 2017, 2.1897 trillion won in 2018, and 3.3057 trillion won in 2019.
However, the domestic duty-free business environment deteriorated sharply through COVID-19. Although international travel demand recovered after the endemic phase, the domestic duty-free industry's business structure—reliant on transactions with daigou (Chinese resellers)—wobbled. At the same time, visits by Chinese group tourists, the main customer base with high average spending, dried up, while fixed costs represented by store rent at airports and other locations continued.
The operating rights for the Incheon Airport DF2 (liquor and tobacco) zone, secured through a 2023 contract, also became a stumbling block. At the time, Shinsegae Duty Free and The Shilla Duty Free obtained the operating rights on the condition of paying rent to Incheon International Airport Corporation (IIAC) linked to passenger volume. But as duty-free spending failed to grow in line with rising airport traffic due to changes in foreign tourists' spending patterns and weaker purchasing power, monthly losses of 6 billion to 8 billion won persisted.
In fact, according to the Korea Duty Free Shops Association, last year's nationwide duty-free sales (excluding in-flight sales) were 12.534 trillion won, down 11.9% from a year earlier. That is the lowest since 2016. Compared with 2019 (about 24.9 trillion won), which marked the pre-COVID peak, the figure plunged to roughly half.
With circumstances unfavorable, Shinsegae Duty Free carried out its first voluntary retirement program at the end of 2024 and closed its Busan store in January last year. In October last year, it also returned the operating rights for the Incheon Airport DF2 zone.
After overhauling its business structure over the past two years, Shinsegae Duty Free is focusing resources on core stores with relatively strong competitiveness, such as the Myeong-dong store and the Incheon Airport DF4 (fashion and boutique) zone. It has shifted its management stance from expansion to a profitability-first approach.
Kim Hyun-cheol, head of sales and marketing at Shinsegae DF, said in a recent interview with the U.K.-based duty-free trade journal The Moodie Davitt Report, "We will no longer evaluate competition based solely on the outdated metric of market share," adding, "Through content-driven curation, a differentiated way of operating luxury brands, and differentiated product offerings, we will secure Shinsegae Duty Free's unique competitiveness."
Brokerages estimate that Shinsegae Duty Free, which has carried out sweeping restructuring, will turn to profit from the second quarter this year. There are also expectations that cumulative annual operating profit will reach 40 billion won.
Baesong-i, an analyst at Mirae Asset Securities, said, "As Shinsegae Duty Free withdrew from Incheon Airport DF2 after late April, most of the airport store losses—estimated at more than 60 billion won last year—will be removed," adding, "Along with the recent recovery in Chinese demand, a meaningful rebound in operating profit is expected."