How China’s ‘daigou’ propelled Lotte into top duty-free shop
Retailer reported US$6.7 billion in sales last year, thanks to a surge in online sales and Chinese buyers who ignored the boycott on Korean goods
South Korea may get fewer Chinese tourists these days, but that does not mean they cannot buy Korean goods.
Korea’s retail franchise Lotte Duty Free reported an all-time sales record of 7.5 trillion won (US$6.7 billion) last year, up a huge 25%.
Its store in Myeong-dong, Seoul’s busiest district, generated sales of over 4 billion won, making it the world’s largest duty-free shop after 38 years of operation.
Joining the “One Trillion Club” was its Lotte Duty Free World Tower, which broke the one-trillion-won mark for sales on December 23, thanks to a 50% surge in online sales, which now account for a quarter of total sales.
Lotte noted that sales of small and medium enterprise Korean brands at the World Tower store tripled year-on-year despite the industry difficulties posed by the bilateral dispute with Beijing over Seoul deploying the THAAD missile system.
China called on its citizens to boycott South Korea in retaliation for its deployment of the US-made system in March 2017 – a move that caused a 48% drop in Chinese tourists to Korea in 2018 and cost the country billions.
Despite the boycott, Lotte noted daigou – surrogate shoppers who buy products overseas on behalf of mainland customers – had compensated for the stagnation in conventional Chinese tourism.
Some tourists take advantage of the price gaps between China and Korea, especially for luxury brands. They travel to South Korea every month and bring back items from duty-free shops to sell them online.
However, a Chinese e-commerce law has been put in place to try to counter these ‘daigou’. Under the new law, daigou are required to register as e-commerce operators with licenses in both China and the country where they shop and are subject to taxation.
The daigou law might have a negative impact on Lotte sales, but there is a silver lining. Talks were already underway for mainland tour operators to bring in group tours in the wake of warmer China and South Korea relations.
So, Chinese money may still come – and change back from online to serving package tours like before.