Korean international luxury brands have withdrawn their cabinets, the peak of the duty-free industry has passed, and the future prospects are worrying

China-Korea News Agency Plum immigration

Following Louis Vuitton, Chanel also announced that it would withdraw its cabinets from duty-free shops in South Korean cities. According to the news of the duty-free industry on the 10th, Chanel will withdraw from the Lotte Duty Free Shop Busan Store and the Silla Duty Free Shop Jeju Branch at the end of next month. Louis Vuitton will withdraw from the Shilla Duty Free Jeju store, lotte duty free shop Busan store and Jamsil World Building store in March after closing the counters at Lotte Duty Free Jeju. The city's duty-free counters at Lotte Duty Free, Shilla Duty Free and New World Duty Free main will also be completely withdrawn between October this year and March next year.

The superficial reply given by the brand side to the reason for withdrawing from the Korean duty-free shop is that it is worried about the damage to the brand image, but the background of the industry analysis is to shift the strategic focus to the Chinese duty-free market, which has seen a "blowout" in luxury consumption in recent years.

In the past few years, driven by the strong purchasing power of Chinese daigou and the continuous growth of foreign tourists, the size of the Korean duty-free shop market has been expanding. According to a report released by Moody David, a professional media in the British duty-free industry, until 2019, the sales scale of Rakuten and Shilla Duty Free Shops ranked second only to Dufry AG in Switzerland, ranking 2nd and 3rd in the world, and the report also predicted that Lotte Duty Free Shop was expected to surpass Dufy in 2020 and become the world's largest duty free shop, but the sudden new crown epidemic gave the duty free shop industry a blow.

After the global pandemic, countries have blocked their borders and restricted the movement of people, and Chinese daigou has become the "life-saving straw" of South Korea's duty-free shops, and 90% of sales rely on daigou. The luxury side was worried that this would have a negative effect on the brand's high-end image and was contrary to the business strategy, so the decision was made to withdraw from the duty-free shop.

China's duty-free market, in contrast to the Korean industry, came to the fore. According to the "2021 China Luxury Market Report" released by Bain & Company last month, the luxury market in China (excluding Hong Kong, Macao and Taiwan) achieved a year-on-year growth of 36% to 471 billion yuan, and the overall scale nearly doubled compared with 2019. China is expected to become the world's largest luxury market by 2025.

The rapid development of China's duty-free market is mainly due to the full support of the government. In 2020, China's Ministry of Finance and other departments issued the Announcement on the Tax-free Shopping Policy for Tourists from Hainan Outlying Islands, which increased the tax-free shopping quota for outlying islands from 30,000 yuan per person per year to 100,000 yuan, and abolished the tax-free limit of 8,000 yuan for a single item. Spurred by a number of favorable measures, CDFG has become the world's largest duty-free retailer.

In contrast, in the Korean market, the personal tax-free shopping quota has been maintained at the level of $600 for 9 consecutive years, and from next month, although South Korea has cancelled the $5,000 departure tax exemption limit for its own people, the actual effect is not optimistic. The Wall Street Journal said that although South Korea's duty-free sales have recovered well, the peak moment is likely to have passed. It also listed that South Korea's duty-free industry has the characteristics of a single consumer group, heavy dependence on Chinese purchasing agents, and profitability. Against the backdrop of geopolitical conflict, increased protectionism and the spread of the pandemic, the competitiveness of South Korea's duty-free shops is in jeopardy.

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