SOUTH KOREA. The victors in the intensifying race among Korean downtown duty free retailers to secure major luxury brands will be those who best target the free independent traveller (FIT). That’s the prevalent view among senior brand executives, who told The Moodie Davitt Report that the recent proliferation of downtown duty free retailers in Seoul risks overkill in terms of brand exposure.
Increased competition has seen commissions paid to Chinese travel agents soar, one source (speaking on the grounds of anonymity) said. Discounted package tours, often bringing in lower-spending travellers from tier 2 and 3 cities, are resulting in Chinese group tourists visiting up to six shops in two or three days. “How many times do luxury brands need to see the same consumer?” he asked.
Chinese travel agent commissions have rocketed from around 7-11% to 23% since the advent of new retailers and “will probably go to 25%”, he commented, adding, “The real winner in Korean duty free is the Chinese travel agent.”
Of the new retailers, Shinsegae Duty Free (which is understood to have got off to a highly successful start at its new Seoul store in Myeong-dong) is arguably the most focused on FIT customers, with just 25% of its business currently being generated by group tourists. “If they could maintain that ratio, it would be the perfect store for us,” said the source.
“We feel we are over saturated in the group tour market – what we need is FIT travellers. We need to find a way to better cater to them,” he continued. “It’s all about positioning, so that we’re not overly dependent on group tourists. You have to be where the FIT is going – it’s not about them coming to you.
“Whoever gets the FIT market will be the winner. They are less expensive and more profitable. It’s all about location, location, location.”
Another prominent supplier told The Moodie Davitt Report: “There is little point in us being seen everywhere. We value the Korean duty free market, particularly as a conduit to China, but our exposure has to be balanced and highly selective.”
A third executive said, in a statement, “We are reviewing all our distribution options and watching the new stores with interest.”
Key locations for Chinese travellers in Seoul covered by the new stores include:
- Myeong-dong – One of Seoul’s main shopping, food and tourism districts. Over 1 million shoppers pass through this area every day, many of them tourists. Home to Lotte Duty Free’s flagship store and the retailer’s famous department store; as well as Shinsegae Duty Free and the same company’s hugely popular department store. The famous Namdaemun Market is nearby.
- Dongdaemun – Home to Doosan Group’s new Doota Duty Free store, a large commercial district comprised of traditional markets and retail complexes. It ranks as Korea’s biggest wholesale and retail shopping district and features 26 shopping malls.
- Yeouido – This popular island area on the Han River is Seoul’s main business and investment banking district. The centre of politics and culture, it is very well-known in China. The area houses Hanwha Galleria Duty Free’s new store opened last December at Hanwha 63 City. The latter is one of Seoul’s best-known tourist attractions, attracting some 3.3 million visitors per year.
- Yongsan-gu – Home to Shilla IPark Duty Free, set to be the world’s biggest duty free shop when fully open. The area ranks as Seoul’s geographic centre, sited between Gangnam and Jongno/Jung (a rich historic and cultural area including – in Jongno – four out of Seoul’s five Grand Palaces). The magnificent National Museum of Korea and War Memorial Museum can be found here.
