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Photo = Yonhap news |
[Alpha Biz= Kim Jisun] Lotte Duty Free, the leading player in the industry, has completely halted transactions with Chinese daigou (bulk-buying agents), who once accounted for 50% of its sales.
According to the duty-free industry on Sunday, Lotte Duty Free notified major commercial bulk-buying clients, including those in China, at the end of last year that it would cease selling duty-free goods to them starting this month. This move signals the company’s determination to prioritize profitability over maintaining sales volume or its top market position. Instead, Lotte plans to focus on marketing and promotions through its own channels or individual travel agencies, aiming to return to profitability.
Kim Dong-ha, CEO of Lotte Duty Free, emphasized in his New Year’s address, “While the duty-free industry has historically focused on volume-based growth, it is now time to pursue profit-centered management activities. From a macro perspective, we will re-evaluate business feasibility and adjust our portfolio to lay the foundation for mid- to long-term growth.”
Since the 2017 THAAD (Terminal High Altitude Area Defense) dispute, which led to a ban on Chinese group tours to South Korea, and the subsequent decline in foreign tourists during the COVID-19 pandemic, domestic duty-free shops have increasingly relied on daigou sales. These agents received commissions of 40–50% of product prices as fees for bringing in customers. Although the commission rate has since dropped to the mid-30% range, it remains higher than the 20% threshold needed for profitability, creating a structure where higher sales result in greater losses.
As a result, Lotte Duty Free recorded operating losses for three consecutive years from 2020 to 2023. Despite a slight return to profitability in 2023 due to reduced commission rates, the company is estimated to have posted an operating loss of over 100 billion KRW last year.
Alphabiz Reporter Kim Jisun(stockmk2020@alphabiz.co.kr)
