Lotte Duty Free, a leading duty-free operator in South Korea, is expected to benefit more than its competitors despite its failure to win the duty-free business at Incheon International Airport in March. With Chinese group tourists preferring to use city duty-free shops over shops at the airport, Lotte Duty Free can offer more aggressive discounts and promotions than its competitors with the rent it saved on airport duty-free shops.

According to industry sources on Sunday, the number of outbound passengers at Incheon International Airport hit 2.69 million in July, a recovery to about 84 percent of the pre-Covid-19 pandemic level in July 2019. But duty-free sales at the airport amounted to only 120 billion won ($89.92 million), or 56.2 percent of the average level in 2019, with the rent at Incheon International Airport currently linked to the number of outbound passengers (PAX). Shilla Duty Free and Shinsegae Duty Free, who secured the most areas at the airport, paid a monthly rent of 30 billion won based on the number of outbound passengers in July this year. If the number of outbound passengers fully recovers to 2019 levels, these duty-free shops will have to pay an annual rent of 400 billion won to Incheon International Airport Corp. As the number of Chinese tourists visiting Korea increases, the airport duty-free operators could face the “winner’s curse.”

It is expected that the return of Chinese group tourists will increase sales at airport duty-free shops, but as most Chinese tourists prefer to shop at city duty-free shops, airport duty-free shops may not benefit as much as expected.

An analysis suggests that departure duty-free shops at the airport are less likely to benefit from the increase in tourists as most Chinese tourists have already spent money at city duty-free shops, shopping centers, and other places during their group tours.

According to data from a seminar on enhancing the global competitiveness of the Korean duty-free industry held late last month, Chinese tourists accounted for 87.7 percent of sales at city duty-free shops in the first half of this year, but only 15.8 percent at departure duty-free shops.

On the other hand, Lotte Duty Free, which failed to win the Incheon International Airport duty-free shop business, is seen to be benefiting from the situation as it can use the rent saved at the airport for aggressive discounts and promotions and to expand its overseas business. Lotte Duty Free has already invited 130 Chinese travel agency representatives to its headquarters in Myeongdong, central Seoul, as part of efforts to welcome Chinese group tourists in earnest.

By Hong Sung-yong and Yoon Yeon-hae

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