Duty-Free Shops Stretch Out... Strengthening Domestic VIP Marketing

'3rd Year of COVID-19'... Duty-Free Industry Seeks Escape Domestically and Abroad
VIP Marketing Aligned with Removal of Domestic Purchase Limits at Duty-Free Shops... Offering Payment Points, etc.
Overheated Competition to Attract Chinese Baggage Traders is 'Poison'... "Should Minimize Until Normalization"

[Image source=Yonhap News]

The duty-free industry is putting effort into finding an escape route to overcome the downturn in business conditions. Along with the abolition of the purchase limit this month, they are strengthening VIP marketing targeting domestic customers, while also preparing to expand foreign customer base in anticipation of the return of overseas travelers in the second half of the year. However, the industry's concerns remain as the external variable of COVID-19 is significant, and competition to attract Chinese peddlers (ttaigong) is expected to intensify until normalization.

According to the duty-free industry on the 7th, major domestic duty-free shops are preparing marketing targeting consumers of ultra-luxury products in line with the abolition of the domestic duty-free purchase limit this month. Lotte Duty Free will hold a large-scale giveaway and discount event for domestic customers for the first time since the outbreak of COVID-19. Domestic customers who purchase over $5,000 (about 6 million KRW) at Lotte Duty Free downtown stores will receive up to 960,000 KRW worth of 'LDF Pay' payment points, which can be used like cash at checkout.

Lotte Duty Free is offering up to 960,000 KRW worth of 'LDF Pay' to domestic customers who spend over 5,000 USD this month. Models are promoting Lotte Duty Free's domestic customer marketing.

The $5,000 duty-free purchase limit for domestic travelers departing overseas will be abolished after 43 years since the system was introduced in 1979. This will open the door for domestic customers, who previously could not purchase ultra-luxury bags and watches such as Chanel and Rolex at domestic duty-free shops, and it is expected to provide some relief to the duty-free industry.

However, the recent proportion of domestic visitors to domestic duty-free shops is less than 5%, and the duty-free limit still remains at $600 (about 720,000 KRW), so some analysts believe the effect will be limited. An industry insider said, "Except for Jeju duty-free shops where purchases are limited, the current proportion of domestic customers is about 1%. Increasing the duty-free limit to reduce tax burden and enhance the effectiveness of abolishing the purchase limit is the industry's wish."

This year, the opening of new overseas duty-free shops, which was postponed due to COVID-19, will also be actively pursued. Lotte Duty Free has tentatively scheduled the opening of downtown duty-free shops in Sydney, Australia, and Da Nang, Vietnam, for April to May, closely monitoring the COVID-19 situation. A company official said, "We need to observe the COVID-19 situation, but we expect overseas travel to become freer from the second half of the year and are preparing accordingly. Marketing targeting foreigners will also be reactivated in earnest."

The immediate challenge is to ease the commission competition for ttaigong, whose dependence has increased amid the COVID-19 situation. According to the Korea Duty Free Association, domestic duty-free sales in January amounted to 1.1619 trillion KRW, the lowest level since June 2020 (1.113 trillion KRW) at the early stage of COVID-19. The reduction in ttaigong purchases due to China's control of entry and exit ahead of the Beijing Winter Olympics played a major role. The industry is concerned that commission competition among companies to recover ttaigong sales will become more heated. An industry insider said, "If the already critical commission competition intensifies further, companies will face situations where they have to accept losses. Minimizing this while preparing for a quick normalization is the immediate task."

The upcoming bidding for duty-free shops at Incheon International Airport, which will resume this year, is also a major topic. The industry expects that even in the 'post-COVID' era, the duty-free business environment will not be the same as before, and is seeking ways to participate strategically in the bidding while maintaining profitability. To this end, they are hoping for a rental fee system based on sales rather than the existing fixed rent system.