Reporter | Chen Qirui
Edit | Lou Shuqin
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International tourism has not yet recovered, and South Korea's duty-free market is dismal. South Korean local media recently reported that French luxury brand Chanel plans to shrink its layout in the Korean duty-free market and will close duty-free shops in Lotte Department Store Busan and Shilla Department Store Jeju in March.
Chanel doesn't have many duty-free stores in South Korea, with Lotte Department Store Busan and Shilla Department Store Jeju being the only two city duty-free stores outside of Seoul. In the future, Chanel will focus more on opening airport duty-free shops. It will open a new duty-free shop in Terminal 1 of Incheon Airport in 2021. This is Chanel's return to Terminal 1 of Incheon Airport after a gap of six years. Commercial Media Marketing Interactive said in the report that Chanel intends to open a new store in Terminal 2.
The migration to the airport is the current trend of luxury brands in the Korean duty-free market. Rolex will massively shrink its Seoul store layout in 2021, closing 7 of its original 10 stores, leaving only two regular boutiques in Seoul and Jeju and duty-free shops at Incheon Airport. It is worth mentioning that the Rolex Incheon Airport store and chanel store opened at the same time, which is regarded as a sign of the adjustment of the duty-free pattern of Incheon Airport.
Louis Vuitton's adjustment strategy was more radical. According to South Korean media Outlet The Korea Herald, Louis Vuitton plans to close all city duty-free shops in South Korea by 2023. The duty-free store at Lotte Department Store Jeju will close in December 2021, and three other city duty-free stores in Seoul, Busan and Shilla Department Store Jeju will be closed in March 2022.
Intra-city tax exemption is the main driving force driving the growth of Korea's duty-free market. South Korea was the world's largest duty-free market before the pandemic, with city-free spending reaching $18 billion in 2019, accounting for 85% of The total Share of Duty Free in South Korea. In contrast, China will replace South Korea as the world's largest duty-free market after 2020, and the share of in-city tax exemptions accounting for less than 10% of the total Chinese duty-free market.
The lack of tourists has left a large number of duty-free stores in South Korea's major cities deserted. For reasons of controlling operating costs, concentrating on the airport is a more economical option. In addition, The Korea Herald also pointed out that Chinese consumers are the main force in duty-free consumption in South Korea, both before and after the epidemic.
Among them, daigou is the main force of Korean duty-free consumption, and the data provided by The Korea Herald shows that nearly 90% of Korean duty-free consumption occurs on the purpose of purchasing. The epidemic has prevented the arrival of regular tourists, and the role of daigou is more prominent. However, considering that the purchasing behavior itself is in a gray area, some brands choose to reduce the number of duty-free shops to curb the purchasing behavior out of the consideration of maintaining the image and the law.
It is worth mentioning that although McKinsey pointed out in the report that a large number of South Korean people will continue to reduce household consumption expenditure for a period of time in the future out of concern for uncertainty, in addition to the duty-free industry, South Korea's luxury consumption has shown a state of undiminished but increased after the epidemic.
In 2020 alone, Louis Vuitton's sales in South Korea exceeded $835 million, up 33.4% from 2019. The share of high-end goods consumption that occurs in regular stores in 2021 will increase by more than 50% compared with 2020. This is related to South Korea's earlier recovery from the outbreak emergency.
Interface Fashion has previously written that Chanel's global price increase strategy has triggered consumers to wait in long lines in front of Seoul stores to buy. According to the Korea Times, the lack of social distancing among the queues has raised concerns from the government, and The Minister of Health for South Korean Citizens, Lo Bao-joo, even said that he would consider whether to implement an executive order against Chanel depending on the development of the situation.
In the past two years, the Asian market, represented by China and South Korea, has become a major driver of growth in the global luxury industry. These markets have emerging local high-net-worth individuals who are hungry for higher-end tastes and lifestyles. Luxury brands are also happy to spend money and effort on marketing. This explains why luxury brands frequently raise prices, but sales in these markets are not affected.