Lotte Duty Free Stops Sales to Chinese Resellers
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Seoul, Jan 12 (NationPress) Lotte Duty Free, a leading duty-free retailer in South Korea, has officially ceased sales to Chinese resellers starting this year. This makes it the first retailer in the local industry to take such a step, as it grapples with deteriorating profitability primarily attributed to elevated commission fees, according to industry sources.
Last year, the company notified significant Chinese resellers that it would discontinue the sale of duty-free products to these merchants from this month onward, the sources indicated.
Chinese merchants have been a crucial component of the local duty-free landscape, acquiring substantial volumes of duty-free items at relatively lower prices to resell in China and Southeast Asia.
Lotte Duty Free's decision seems to target an enhancement in profitability, even though it may lead to a drastic drop in sales following considerable business losses.
Since 2017, these resellers have emerged as vital customers for local duty-free retailers, particularly after the Chinese government prohibited group tours to South Korea as a response to the installation of an advanced U.S. anti-missile system in the country. Reports suggest that Chinese resellers have accounted for as much as half of the sales for South Korean duty-free retailers in the aftermath of the pandemic.
Nonetheless, they have also played a significant role in the declining profitability of local duty-free businesses.
To manage their inventory, South Korean duty-free retailers have frequently been compelled to sell products to these merchants under unfavorable conditions, at times providing refunds or discounts of up to half of product prices as commission fees to the Chinese resellers, which has resulted in losses.
In the initial nine months of the previous year, South Korea's four largest duty-free retailers reported a total operating loss of 135.5 billion won (approximately $91.9 million).
In his New Year's message, Lotte Duty Free's CEO, Kim Dong-ha, stated that the company would prioritize profitability and rehabilitate its business portfolio for sustainable growth in the mid-to-long term.
Kim emphasized the importance of enhancing product competitiveness and attracting individual traveler customers as vital components of this strategy.
