
Lotte Duty Free has announced it will no longer sell its duty-free products to Chinese resellers, despite their significant purchasing power, according to industry sources.
The decision, communicated to the resellers late last month, is the first of its kind among Korean duty-free operators and underscores Lotte’s efforts to recover profitability after years of cumulative losses.
The resellers, known as “daigou,” first emerged in 2017 after China banned group tours to South Korea in response to the deployment of the US THAAD antimissile system. These resellers profit by purchasing goods in bulk in Korea and reselling them in China and Southeast Asia. As the COVID-19 pandemic restricted international travel in 2020, their business further expanded.
Given that nearly half of Lotte Duty Free’s annual sales last year came from Chinese resellers, the company now seems to prioritize profitability, even if it results in a significant decline in total revenue.
Over the past years, daigou have received significant discounts -- ranging from 40 to 50 percent off retail prices -- as commission. Since 2023, duty-free shops have lowered these to around 35 percent amid growing concerns over financial losses. However, as the rates still exceed the industry’s average profit margin of 20 percent, increased sales to daigou often lead to even greater losses for duty-free businesses.
Last year, the Korean duty-free sector endured one of its worst financial years. From the first to third quarters of 2024, the combined operating losses of four major players -- Lotte, Shilla, Shinsegae and Hyundai -- amounted to 135.5 billion won ($91 million). With fourth-quarter results factored in, total annual losses are projected to reach approximately 200 billion won.
On top of lackluster performance, duty-free shops are also grappling with mounting challenges, including heightened competition from local retailers such as Olive Young and Daiso, and the impact of a weakening Korean currency.
By Park Min-ha (en23mp@heraldcorp.com)