South Korea's major duty-free operators all returned to profit or improved earnings in the first quarter, marking a turnaround for the industry.
Lotte Duty Free posted first-quarter sales of 792.2 billion won, up 24% from a year earlier, while operating profit surged 111% to 32.3 billion won, the duty-free industry said Thursday. The operator has now logged operating profit for five consecutive quarters.
Hotel Shilla's TR division, which oversees its duty-free business, reported first-quarter sales of 884.6 billion won, up 7% year-on-year. Operating profit swung to a profit of 12.2 billion won.
Shinsegae Duty Free also returned to the black with operating profit of 10.6 billion won as sales rose 5%. Hyundai Duty Free likewise turned profitable, posting operating profit of 3.4 billion won, an improvement of 5.3 billion won from a year earlier.
The industry views the first-quarter performance as the result of a "qualitative restructuring." Individual foreign tourists (FIT) and K-brands are emerging as new growth engines, replacing the Chinese daigou (resellers) who once underpinned the duty-free industry.
According to the Korea Duty Free Shops Association, 1,089,209 foreign customers visited duty-free shops in March, a 28.7% jump from 846,148 in the same month last year. Total foreign sales stood at around 850 billion won, similar to last year's level.
Average spending per foreign customer fell to about 780,000 won from roughly 1 million won a year earlier, but analysts say the industry has shifted to a "low-cost, high-efficiency" structure that has actually improved underlying profitability. The change reflects sharply reduced commissions that operators had previously paid to attract daigou.
"With high exchange rates and inflation cutting domestic buyers by about 50,000 from a year earlier, the increase in foreign tourists has become the key driver behind the industry's earnings defense and return to profit," a duty-free industry official said.
