SOUTH KOREA. In an important change to the structure of the country’s travel retail sector, the government announced earlier this month that it will permit online sales of Korean domestic duty free products to overseas residents without them having to visit South Korea.
That initiative is expected to be implemented within three months at the earliest.
The country’s leading duty free retailer (and world number two) Lotte Duty Free welcomed the development and said that it would aid the company’s bold ambitions to enter the Metaverse (see separate story here).
“With this new measure, it is now expected that Lotte Duty Free’s Metaverse duty free shop project will gather momentum.
“As the era has arrived when foreigners can order high-quality and reliable Korean duty free goods in the rooms of their houses without having to come to South Korea, Korean players with Metaverse duty free shopping functions can be seen as presenting a new business model to generate profits,” the company said.
The development has attracted mixed reaction within and outside the Republic. One seasoned Korean travel retail executive noted: “Some expect that it [the new regulation] can be used to carry daigo bulk trade without visiting Korea but the purchase amount will be strictly controlled and with only Korean products being allowed it cannot be a big help [to the Korean industry].”
However one international brand company executive thought there might be a backlash: “It eliminates the Korean customs challenge and transfers it to China customs’ problem and others. I think the response will likely be harsh,” he said.
Korean media title TRNDF described the development as “good news” for the domestic duty free shop industry, which it said had been “unilaterally swayed by bulk buyers for about two years due to the coronavirus”.
The report argued that Korea Customs Service’s move in April 2020 to abolish the limit on foreign purchases – initially designed as a support measure for the industry – had in fact brought about a “boomerang effect”. This has seen Korean duty free retailers become “subordinated” to Chinese mass-buying merchants, resulting in structural deformities in the marketplace with retailers’ operating margins being severely eroded.
TRNDF pointed out that, simultaneously with the new regulations, the previous ability of purchasers to take Korean duty free items out of the store after purchase (as opposed to the airport delivery requirement for foreign goods) is being scrapped. Many traders had bought air tickets out of Korea, purchased local duty free items and then cancelled their bookings, the report said. The consequent leakage into the local market had further distorted the industry.
“This K-product hand-over at POS has been creating a lot of tax evasion and much controversy over legality as well as the issues of spoiling the local market with leakeage of the purchases instead of export,” a source told The Moodie Davitt Report.
