SOUTH KOREA. Lotte Duty Free is boosting its business with bulk daigou resellers in a turnaround from a near cessation of the unofficial channel in January due to its deteriorating profitability. However the travel retailer insists it is being selective about such trade with an eye on maintaining profitability.
A Lotte Duty Free spokesperson confirmed the change to The Moodie Davitt, commenting: “Since we began limiting transactions with daigou resellers in January, the overall size of the daigou market in Korea’s duty-free sector has significantly declined.
“Since then, we have continued only selective transactions, and sales have seen a temporary, modest increase. Going forward, we will continue to operate cautiously within the scope of ensuring profitability.
“In addition, with the visa-free policy for Chinese group tourists set to take effect at the end of September, we expect the proportion of daigou resellers to naturally decline.”
The decision aligns Lotte Duty Free with its peers The Shilla Duty Free and Shinsegae Duty Free, which have continued significant levels of bulk reseller trade this year.
The Korea Economic Daily said the Korean daigou business has been picking up since June. “Lotte’s sales to Chinese bulk traders reached tens of billions of Won, or multimillions of dollars, last month and are accelerating this month,” the leading business title wrote, quoting industry sources.
“Lotte’s January withdrawal from the business was billed as a structural shift to improve margins. The move trimmed commission costs and lifted operating profit, but overall sales shrank, prompting Lotte to reopen daigou channels after five months.”
The Korean market had become hugely reliant on daigou business over recent years. Lotte Duty Free, in particular, was forced to focus heavily on it after being caught in the frontline of the THAAD anti-missile system dispute with China in 2017. But it was the COVID-19 pandemic, which devastated inbound and outbound tourism, that saw bulk reseller soar in importance for retailers and brands.
That in turn led to a commission war among retailers, who were forced to pay ever higher cuts to travel agencies that facilitate Daigou purchases.
A late 2022 Korea Customs Service (KCS) edict to duty-free retailers that “excessive” commission fees to travel agencies linked to the bulk resale of goods in China should be eliminated saw the sector reduced but far from eliminated. ✈
