"Spring Breeze Blows Through Shopping Districts... Duty-Free Shops Still in 'Midwinter'"

Domestic Duty-Free Shops Recorded Around 340,000 Visitors in January
One-Tenth of Last Year... Lowest Since COVID-19
Government Temporarily Reduces License Fees, Industry Says "Fundamental Solutions Needed"
Fee Rationalization and Duty-Free Limit Increase Required

[Asia Economy Reporter Yuri Kim] While crowds pour into department stores and outlets signaling the arrival of spring, the duty-free industry is still deep in winter. The number of visitors to domestic duty-free shops fell below 400,000 in January, marking the lowest point since the COVID-19 outbreak. Industry voices are calling for fundamental measures rather than temporary fixes.

◆Visitor Numbers Plummet to One-Tenth

According to the Korea Duty Free Association on the 2nd, the number of visitors to domestic duty-free shops in January was 284,356 Koreans and 59,627 foreigners, totaling 343,983. This is the lowest figure since January last year, just before COVID-19 became a global pandemic.

The number of visitors, which reached 3,837,445 in January last year, has been cut to one-tenth in just one year. Visitor numbers sharply dropped from 1,754,175 in February last year to 587,879 in March, then fell further to 354,362 in April. After a slight rebound, the numbers stayed between 400,000 and 600,000 until the end of last year but dropped again to the 300,000 range in January this year.

◆Concerns Over Re-spread, Decrease in Jeju Island Tourists

The duty-free industry attributes this record to a decrease in tourists to Jeju Island during winter and growing concerns over a COVID-19 resurgence due to the emergence of variant viruses. In particular, the number of Chinese "bottari-sang" (traveling traders), who make up a large portion of foreign visitors to duty-free shops, has significantly decreased since November last year. This is because travelers departing from Korea to China must undergo two COVID-19 tests before boarding, making entry and exit procedures more stringent.

Industry insiders agree that the situation did not improve much in February, and with fewer business days, it is difficult to expect an increase in duty-free shop visitors. More importantly, even if visitor numbers slightly increase from 300,000, it remains far below pre-COVID-19 levels, threatening the survival of the duty-free industry.

◆All Remedies Ineffective

The government has decided to reduce the license fees for sales in 2021 and 2022 by 50% compared to the current rates through amendments to the Customs Act Enforcement Rules. If the existing rates were applied, the license fees the domestic duty-free industry would have to bear last year are estimated at around 50 billion KRW. With this reduction, the industry can save between 20 billion and 25 billion KRW.

Amid this situation, Lotte and Shilla withdrew from the duty-free shops at Incheon Airport Terminal 1. The vacated duty-free spaces are being expanded and operated by existing operators such as Shinsegae and Hyundai. However, expanding the operating area amid poor business conditions due to COVID-19 has raised concerns that it imposes additional burdens on existing operators. Considering the difficulty in selecting new operators for the time being, these two companies must continue to operate expanded stores indefinitely.

◆Struggling to Survive with Non-Stop Flights and More

The industry is striving for partial improvement amid COVID-19 by expanding promotions such as non-stop sightseeing flights. Currently, non-stop sightseeing flight products operated by Korean Air's A380 aircraft have appeared, indicating an expansion of offerings. However, the industry voices that this is only a temporary measure.

A duty-free industry official said, "Although the reduction of license fees will help alleviate the immediate crisis caused by COVID-19's severe impact on the duty-free industry, it is not a fundamental solution. It is time to make institutional improvements, such as rationalizing the excessively high domestic license fees compared to other countries and increasing duty-free allowances."