Major domestic duty-free operators all posted profits in the first quarter, emerging from a tunnel of weak results, but concerns remain that it is too early to be optimistic about a full recovery in the sector. The number of foreign shoppers is rising quickly, but per-capita spending keeps falling. With the old formula of "big-spender" customers such as Chinese daigou boosting sales no longer working as before, the duty-free industry is shifting from relying on a subset of customers to a strategy of diversifying products and content to attract more individual tourists.
According to the Korea Duty Free Shops Association on the 31st, the number of foreign purchasers at domestic duty-free shops last month was 1,193,862, up 23.9% from a year earlier. In contrast, foreign sales in the same period fell 6.2% to 879.5 billion won from 937.8 billion won. As a result, per-capita foreign spending dropped 24.3% in a year, from 973,500 won to about 736,700 won. More foreigners are visiting duty-free shops, but the sales contribution per person is lower than before.
Total duty-free sales are also closer to moving sideways. Last month, total sales at domestic duty-free shops were 1.1192 trillion won, up 3.4% from 1.0825 trillion won in the previous month, but down 5.5% from 1.1846 trillion won in April last year. So far this year, monthly sales have repeatedly fluctuated around the 1 trillion won range. While the number of shoppers is recovering, the continued drop in average ticket size is limiting the pace of sales expansion.
In this environment, the headline results of major duty-free operators are showing a recovery. Lotte Duty Free posted first-quarter sales of 792.2 billion won and operating profit of 32.3 billion won. Compared with a year earlier, sales rose 24% and operating profit jumped 111%, marking a profit for the fifth straight quarter. The Shilla Duty Free saw sales rise 7% to 884.6 billion won, and it swung to a profit for the first time in seven quarters with operating profit of 12.2 billion won.
Shinsegae Duty Free also recorded sales of 589.8 billion won, up 5%, and operating profit of 10.6 billion won, marking a profit for the second consecutive quarter. Hyundai Duty Free's sales fell 27.2% to 213.7 billion won due to store reductions, but it posted 3.4 billion won in operating profit for a third straight quarterly profit.
However, some say it is hard to view the industrywide improvement as the result of a structural recovery. That is largely because companies have shed low-margin stores and concessions and carried out restructuring while cutting the share of daigou transactions and easing the burden of customer-acquisition commissions. Lotte Duty Free entered an emergency management mode in 2024, pursuing voluntary retirements, executive pay cuts and a leaner organization, and it also reduced part of the sales floor at the Lotte World Tower store.
Following voluntary retirements, The Shilla Duty Free returned the DF1 concession area at Incheon Airport, citing high rent burdens. Shinsegae Duty Free also conducted voluntary retirements and exited the Busan downtown duty-free store and the DF2 area at Incheon Airport. Hyundai Duty Free likewise closed its Dongdaemun store and reduced the operating area at the Trade Center location, while pushing employee job transfers and voluntary retirements.
With lower cost structures, duty-free operators are focusing on filling diminished "big-spender" demand with individual tourists. In the past, duty-free sales relied heavily on daigou bulk purchases, but as commissions paid to them eroded profitability, companies have sharply reduced the share of daigou transactions since last year. Instead, they are expanding product categories that individual tourists can buy without pressure, such as K-beauty, K-fashion and K-food, and strengthening experiential content to draw store visits.
In January, Lotte Duty Free installed a "K-pop Photo Lift" at its Jamsil World Tower store that blends K-pop content. It decorates a dedicated elevator with K-pop artist content and uses the path connecting to the duty-free store as a hub for experiential content. Hyundai Duty Free ran an "AI Beauty Trip" at its Trade Center store, holding an event that recommends customized beauty products to customers through personal color diagnosis and skin condition analysis.
Shinsegae Duty Free last July renovated the 11th floor of its Myeong-dong store and this April renovated its Incheon Airport Terminal 1 store into "Taste of Shinsegae," a K-culture multi-brand shopping space. It gathers more than 100 brands, from desserts and food to fashion, gifts and K-pop merchandise. The Shilla Duty Free held an event at its Seoul store offering jjimjilbang passes to Taiwanese tourists who purchased K-beauty items, and it also hosted popular brand pop-ups such as Gentle Monster and Charlotte Tilbury at the Seoul store and the Incheon Airport store.
An industry official said, "As tourists' shopping patterns change, it is not easy to lift the average ticket size," adding, "It has become more important to raise visit rates and purchase conversion rates among individual tourists with K-beauty, fashion and food, and experiential content."