Recently, it has been reported that South Korea’s Lotte Duty Free Shop officially informed its major Chinese resellers at the end of last year that it would completely stop selling duty-free goods to them starting from January this year.
Lotte Duty Free Shop, established in January 1980, is one of the largest duty-free shops in South Korea. Over the past few decades, it was the first in South Korea to open luxury boutiques for brands such as Louis Vuitton, Chanel, Hermès, and Cartier. Additionally, it offers popular cosmetics brands like SK-II, Lancôme, Estée Lauder, and Shiseido, with a total of over 900 world-famous brands.
With the rise of the Korean Wave (Hallyu), Korean resellers gradually became a trend. Official data shows that in just over half a year by August 2012, the number of people entering South Korea exceeding the duty-free limit reached 205,000, with a significant increase in illegal purchasing activities.
After the 2017 THAAD incident, organized group tours from China to South Korea were suspended, further emphasizing the role of resellers. During the global spread of the COVID-19 pandemic in 2020, duty-free retailers, in order to clear inventory, even offered rebates as high as 40-50% of the original price to resellers. Although South Korean duty-free shops began efforts in 2023 to lower rebate rates to 35%, this figure still far exceeded the 20% profitability baseline.
For Lotte, which heavily relies on resellers, this business model has led to a vicious cycle of “selling more and losing more.” Data shows that in 2024, resellers accounted for as much as 50% of Lotte Duty Free’s sales. Despite the boom in the purchasing business, Lotte Duty Free Shop failed to achieve the expected profits. Data reveals that in the first half of 2024, Lotte Duty Free’s operating profit shifted from a profit of 41.6 billion won ($28.5 million) in the same period the previous year to a loss of 46.4 billion won ($31.8 million).
