Foreign operators threaten Korea’s duty free shops

Korea’s duty free stores are sensing a crisis because of increasingly tougher challenges from their competitors in China, Japan and Thailand, industry sources said Tuesday.

According to the Korea Duty-Free Association (KDFA) and distribution industry sources, the nation’s duty free retail market grew to 8.3 trillion won ($7.24 billion) last year, up 21.6 percent from 2013. There were still wide gaps with the neighboring markets of China (5.6 trillion won), Thailand (2.1 trillion won) and Japan (1 trillion won).

But these regional competitors are rapidly expanding their markets, going all out to draw Chinese tourists to erode Korea’s lead.

And this year has provided good opportunities for foreign operators, as the number of Chinese visitors to Korea sharply declined to 4.36 million in the first nine months, compared with 6.13 million last year, affected by the breakout of Middle East Respiratory Syndrome in April. But the number of Chinese people who visited Japan and Thailand in the first nine months rose from 2.41 million and 4.62 million to 3.83 million and 6 million, respectively, from a year ago.

Foreign analysts also saw it as serious. “The Korean duty free retail market may appear to be a golden goose because of the influx of Chinese tourists,” said Martin Moody, chairman of Moody Report, a British distribution magazine. “Those golden eggs could prove to be quite fragile, however, because of unpredictable factors as seen in the MERS crisis.”

Industry experts stress the need for enhancing the global competitiveness of domestic operators by expanding their store sizes and developing specialized services. Amid the ever-toughening competition, running duty free stores is no longer a preferential business, they said, adding that the government and industry should cooperate to create more competitive operators.