[Expanding K-Distribution Overseas] "Full-Scale New Store Openings"... Duty-Free Shops Also Stretching Out Post-Endemic Abroad

Major Overseas Stores Sequentially Reopen + New Overseas Store Openings
Lotte Duty Free Resumes New Store Openings After 683 Days, Opens Sydney City Store in Australia
Overseas Store Sales Increase 240% YoY... Targeting 250 Billion KRW Overseas Sales This Year
Shilla Duty Free Expands Operations and Expects Sales Growth at Changi, Macau, Hong Kong Airport Stores in H2
Amid Post-COVID Industry Changes, Growing Concerns in China... Consensus on Necessity of Business Diversification Including Overseas Expansion

[Image source=Yonhap News]

The duty-free industry, which was hit hard by COVID-19, is reorganizing its operations not only domestically but also overseas as it enters the endemic era (periodic outbreaks of infectious diseases). Major overseas stores that had closed due to the halt in traveler traffic are gradually reopening to welcome customers returning to normal life, and for the first time in about 700 days, new overseas stores are being launched to secure new customers.

According to the duty-free industry on the 20th, as operations at major overseas airports are resuming one after another, the operation of overseas stores by domestic duty-free companies is also gaining momentum. Industry insiders explain that even considering the base effect from last year, which was still affected by COVID-19, a clearly changed atmosphere has been sensed this year.

The most proactive player in overseas stores this year is Lotte Duty Free. Currently, Lotte Duty Free operates a total of 12 overseas stores. Starting with the Guam Airport store in the United States in 2013, it operates stores at Kansai Airport and Tokyo Ginza in Japan, Da Nang Airport, Nha Trang Cam Ranh Airport, Hanoi Airport in Vietnam, Brisbane Airport and Darwin Airport in Australia, Maplerun City, Wellington Airport in New Zealand, and Changi Airport in Singapore. Last month, after the prolonged COVID-19 situation, Lotte Duty Free resumed new store openings for the first time in 683 days since opening the Changi Airport store in June 2020, launching a new store in downtown Sydney, Australia. Most of these stores have entered partial or normal operations riding the endemic wave.

Accordingly, Lotte Duty Free's overseas store sales have grown 240% year-on-year through the 14th of this month. In particular, sales in Singapore surged 450% compared to the previous year. Australia has seen about a tenfold increase in passengers entering and leaving the country over the past month compared to last year. Vietnam is also expected to operate charter flight routes in July and August following the lifting of quarantine for arrivals, raising expectations for sales recovery. With the recovery of tourist demand, the opening of Lotte Duty Free's Da Nang downtown store, which was postponed due to COVID-19, is also expected to take place in the second half of this year. With this recovery, Lotte Duty Free aims for overseas store sales of 250 billion KRW this year. It also plans to expand its overseas business scale by opening a downtown Hanoi store in the first half of next year.

Shilla Duty Free operates stores at Changi, Macau, and Hong Kong airports. Currently, the opening of overseas duty-free stores varies depending on each country's COVID-19 situation and the operating plans of respective governments and airport corporations, but the Changi Airport store is gradually expanding its operations. Accordingly, Shilla Duty Free recently resumed operations at Changi Airport terminals 1 and 3, officially restarting overseas store operations after COVID-19. As of last month, the store in Singapore is operating at over 50% capacity. With the increase in departing passengers, stores are reopening one after another, and Terminal 4 at Changi Airport, which was shut down, is scheduled to resume flight operations from September, raising expectations for higher sales in the second half of the year. Macau and Hong Kong airport stores, which are heavily influenced by China, are operating flexibly according to flight schedules due to China's COVID-19 situation.

Last year, Shilla Duty Free signed a memorandum of understanding (MOU) with Hainan Haikou Duty Free Store in China to promote duty-free store operations between the two countries. They established a joint venture in Hainan and promised mutual cooperation in overall operations including product sourcing, market development, human resource exchange, and joint product development. Other domestic duty-free stores, excluding Lotte and Shilla Duty Free, are also preparing for the endemic era by reorganizing their operations and considering business diversification including overseas stores in various ways to seek growth opportunities.

The reason the duty-free industry continues to knock on overseas markets is due to the rapid growth of Chinese duty-free stores backed by full government support and the changed business environment before and after COVID-19. Since 2011, the Chinese government designated Hainan as a domestic duty-free special zone and nurtured it. After COVID-19, they implemented active support policies such as allowing domestic visitors to Hainan to purchase duty-free goods online for 180 days after returning to the mainland. The annual per capita duty-free shopping limit in Hainan was also increased from 30,000 yuan (about 5.79 million KRW) to 100,000 yuan (about 19.29 million KRW), and the shopping frequency limit was removed. Due to these effects, the Chinese state-owned enterprise China Duty Free Group (CDFG) recorded the world's number one duty-free store sales in 2020. Last year, the total sales of Hainan duty-free stores increased by 83% compared to 2020.

On the other hand, domestic duty-free store sales peaked at 24.8586 trillion KRW in 2019, then halved to 15.5042 trillion KRW in 2020. Although there was a slight recovery to 17.8333 trillion KRW last year, concerns remain whether the previous competitiveness can be maintained even if the shadow of COVID-19 completely disappears. An industry insider said, "Having experienced a survival crisis due to COVID-19, we will put more effort into diversifying customers for sustainability in the post-endemic era," adding, "Expanding overseas business is an essential element for this."