The most profitable product in the Korean duty-free market has been ‘made-in-Korea cosmetics’ since the Chinese began to come in flocks in 2014.
In 2016 it is forecast that prestigious brands will become chicken ribs (gyereuk, 鷄肋, chicken ribs: something that one hesitates to give up even though it is of little interest) in the Korean duty-free market. Last May the ‘Chanel’ boutique pulled out of Incheon International Airport duty-free shops, and in September the ‘Chanel’ cosmetics shop was closed at the Incheon International Airport, and on December 31 the ‘Chanel’ boutique shop was shut down in the Daegu Lotte Department Store by reason of contract termination. It is quite rare that luxury brand shops were shut down in succession. Furthermore, duty-free shops have been regarded as the only channel through which luxury items can be purchased at prices lower than at local department stores. However, the awareness and status of prestigious brands in duty-free shops began to wane seriously due to the Chinese tourists who had been flocking to Korea since 2∼3 years ago.
Photograph=Kim Sun-ho/ A local brand store in a downtown duty-free shop is packed with tourists.
According to the data Korea Duty-Free News obtained from the office of National Assembly member Hong Jong-hak, the prestigious brand ‘Louis Vuitton’ was indisputably No. 1 in sales in the main Lotte duty-free shop (Sogong-dong) from 2010 till 2014. However, according to the 6-month sales data until June 2015, Louis Vuitton slipped to third. Prestigious global brands ‘Chanel’ and ‘Cartier’ were ranked 2nd or 3rd until 2014, but in 2015 they fell to 5th and 7th respectively. Louis Vuitton sales peaked at KRW103.7 billion in 2011, and have since been declining slowly. Prestigious global brands have been replaced by domestic cosmetics and brands like ‘MCM,’ ‘WHOO,’ ‘SULWHASOO,’ ‘HERA’ and ‘LANEIGE.’ It is no exaggeration to say that “without local brands, the sales of downtown duty-free shops would have never increased to a record level.”
Compiled by Kim Sun-ho/ As for local cosmetics brands, the total sales of all Amore Pacific brands were ranked No. 10 in 2010, No. 9 in 2011 and 5 in 2012. During the first 6 months of 2015, the aggregate sales of ‘SULWHASOO,’ ‘HERA,’ ‘LANEIGE’ and ‘IOPE’ amounted to KRW113.7 billion, greater than the peak sales of Louis Vuitton in 2011.
The sales of one of the two largest duty-free shops in Korea, i.e. the Seoul store of the Shilla Duty-Free Shop (Jangchung-dong), are not very different than those of the Lotte Duty-Free Shop (Sogong-dong). At the Shilla Duty-Free Shop, Louis Vuitton had been ranked No. 1 in sales for 3 years from 2010 to 2012. In 2013 and 2014, ‘Cartier’ had been No. 1 in sales for 2 years, followed by ‘Louis Vuitton’ which had been ranked No. 2 for 2 years, but in 2015 ‘Cartier’ and ‘Louis Vuitton’ slipped to No. 5 and No. 6 respectively.
Compiled by Kim Sun-ho/ At the Seoul Store of the Shilla Duty-Free Shop various Korean cosmetics brands, including Amore Pacific, made great advances, and in 2011 Amore Pacific was ranked No. 10 in sales, but if the sales of Amore Pacific brands ‘ETUDE’ and ‘INISFREE’ are combined, the sales jumped to KRW18,055 million, the 4th position on the list. In 2014 at the Seoul store of the Shilla Duty-Free Shop, the sales of LANEIGE, one of Amore Pacific brands, exceeded those of Chanel.
Like this, in Korean duty-free shops, prestigious brands are rapidly falling. In 2016 the domestic duty-free market is going through rapid changes. As 4 large corporations (HDC Shilla, Hanwha, Shinsegae and Doosan) entered the market, they are planning to operate 8 new duty-free shops in Seoul. As the new duty-free shops in the duty-free market cannot attract prestigious brands, they are putting off their grand opening until March or June. Different people have different opinions. Even though the sales of prestigious brands are seriously declining already, will the largest downtown duty-free shops in Korea ‘succeed in attracting prestigious brands?’ or ‘will they enjoy stable sales?’
One of the first-generation duty-free industry insiders, who introduced prestigious brands to Korea for the first time, said, “We visited foreign luxury brands, to whom Korea was wasteland, a few times a year, explained to them about the domestic market, and worked hard to persuade them to open shops in Korea. After making efforts to attract prestigious foreign brands for several years, we were able to bring prestigious foreign brands to Korea.” Things are not that different now. It takes a long time to enter into a contract for opening up duty-free shops, and even if the contract is signed, it will be more than a year before such luxury brands open up their stores in duty-free shops. They use only those interior materials which their head offices designate, or bring them from the countries where their head offices are located. Like this, prestigious brands are stuck-up and cocky in terms of commissions as well as in the contracting process. Looking only at sales, however, foreign luxury brands became ‘chicken ribs’ in Korea.
An official of Chanel, which pulled out of the Incheon International Airport duty-free shops, said, “The large number of stores does not necessarily mean that profits will increase. Believing that there are too many Chanel stores in Korea, it is now trying to reduce the number of stores.” However, it cannot be said to be an essential reason. According to the result of data analysis, at a time when sales began to rapidly decrease, prestigious brands are talking about reducing the number of stores. As for China, in 2015, a total of 10 luxury brands including ‘Louis Vuitton’ and ‘Cartier’ shut down 28 stores. Prestigious brands are also expected to close their stores in Korea at an accelerated pace.
Accordingly, prestigious global brands are forecast to become chicken ribs in the Korean duty-free market in 2016. It seems that the number of Chinese tourists will also increase this year. As the relations between Korea and Japan began to thaw thanks to the dramatic agreement they reached at the end of last year, more Japanese tourists will visit Korea. Nevertheless, it is highly likely that Japanese tourists visiting Korea, who purchase luxury brands, may not act as a big variable due to the cheap Yen. After all, prestigious brands in the Korean duty-free market are not expected to show marked sales growth or great advances in 2016. However, the duty-free shops of large corporations, which opened downtown duty-free shops in Seoul, are highly likely to utilize it for marketing purposes. It seems that depending on whether they can attract global luxury brands, the new duty-free shops must choose between "an aggressive marketing strategy of publicizing their duty-free shops as high-class duty-free shops or concentrating on increasing sales through domestic cosmetics brands without prestigious brands."
