November 24, 2024

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A Chanel boutique at the Avenuel department store, operated by Lotte Shopping, in Seoul (Bloomberg)

French luxury brand Chanel has decided to pull out of duty free shops in Busan and Jeju in late March, signaling another blow to local duty free retailers who have also lost Louis Vuitton and Rolex.

Chanel has informed the retailers that they will close boutiques at the Lotte duty free store in Busan and the Shilla duty free store in Jeju, the only downtown duty free shops outside Seoul that had Chanel.

Louis Vuitton stopped running its store at the Lotte duty free shop in Jeju from Jan. 1, and is scheduled to close all of its six downtown duty free boutiques in Korea by March next year.

Rolex already shut seven out of 10 stores in Korea late last year, leaving shops open only at Lotte duty-free in Seoul’s World Tower, Shilla duty-free in Jeju and Incheon Airport.

Chanel and Louis Vuitton’s decision to close comes as the Korean duty-free industry suffers from a sharp decline in sales due to the pandemic. Over 90 percent of revenue now comes from Chinese resellers, known as daigong, up from about 50 percent before COVID-19.

Daigong buy luxury goods in bulk from duty free shops in Korea, and resell them through e-commerce platforms like TaoBao or unofficial channels, hurting the brand image and making it harder for high-end brands to control their product distribution and price policy.

Daigong are known for demanding excessive discounts, making frequent refund requests and even mixing in counterfeit products as they resell the luxury goods.

As COVID-19 limited overseas travel, duty free stores of Lotte and Shilla saw their revenues plunge 37.1 percent and 39.1 percent, respectively in 2020, compared to 2019.

Premium brands such as Louis Vuitton are seeking to focus instead on department stores and airport duty-free shops, especially those in China’s domestic flight airports.

Louis Vuitton reportedly plans to open six more airport duty-free stores by 2023, and a second outlet at Hong Kong International Airport to woo Chinese consumers.

While the pandemic has bogged down duty-free sales, luxury brands are doing even better than before at department stores here.

Louis Vuitton Korea posted over 1 trillion won ($835 million) in sales in 2020, up 33.4 percent from the previous year.

Sales of premium brands at local department stores are estimated to have surged more than 50 percent last year, compared to 2020.

In addition to the fact that people spent more on shopping as they couldn’t travel abroad, the rising prices of luxury products made them more attractive for resale, resulting in long queues of customers seeking to snatch popular items at stores.

Also, because of a government policy that allows tax exemptions for only $600 worth of duty-free goods per person, some highly expensive luxury goods were sold at lower prices in department stores, compared to duty-free shops.

By Kim So-hyun (sophie@heraldcorp.com)