Chanel Is the Latest Luxury Brand Pulling Back From Korean Duty-Free Segment

The French luxury house is set to exit its downtown duty-free businesses outside Seoul, closing stores at the Busan Lotte Duty Free shop and the Shilla Duty Free Jeju Fashion Boutique by the end of next month, according to local news reports.

Chanel’s move follows Louis Vuitton’s decision to progressively close all of its downtown duty-free stores in the country by March 2023, as well as luxury watch brand Rolex’s shuttering of seven stores there last year, leaving only three trading – at Seoul, Jeju and Incheon airports.

The closures follow the decline in the Chinese daigou trade (a grey market in which surrogate shoppers buy lower-priced offshore products and resell them in China) that came to a virtual halt when the Covid-19 pandemic effectively closed Korea’s borders to tourists.

Daigou shoppers accounted for more than 90 percent of sales at Korean duty-free stores in the years prior to the pandemic, according to data from The Moodie Davitt Report.

China overtook South Korea as the world’s largest duty-free market in 2020, with sales valued at close to $7 billion. GlobalData predicts the country’s duty-free sector will experience a constant annual growth rate (CAGR) of 17.4 percent from 2019 through 2025, largely driven by Chinese government policies promoting domestic duty-free consumption.

Louis Vuitton is responding to that growth with plans for six more airport duty-free stores on the mainland by next year, and a second outlet at the Hong Kong International Airport.

Ankita Roy, retail analyst at GlobalData, predicted late last year that South Korean duty-free sales are not expected to return to pre-Covid-19 levels until 2024.

“The macro-economic factors in South Korea such as Covid-19-induced travel restrictions and recent trade war and political tensions with Japan and China have resulted in fewer tourist arrivals from these nations in recent past,” she said.

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