Companies look for ways to revive duty-free industry

Shops inside the DF1 zone, a duty-free zone for perfumes, is seen largely vacant at Incheon International Airport on Feb. 5. [CHOI HYUN-JU]

 
Korea’s duty-free industry, once a cash cow for major conglomerates, is rapidly losing its shine. A decade ago, corporations fiercely competed for licenses to operate duty-free stores; now, they are eager to abandon the sector.
 
Shinsegae Duty Free and Shilla Duty Free have decided to withdraw from Incheon International Airport’s DF1 and DF2 zones — which sell perfumes, cosmetics, liquor and more — despite the move requiring them to pay a combined 190 billion won ($131 million) in penalties. Both companies concluded that absorbing the loss would be cheaper than continuing operations. 
 

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They are set to be replaced by Hotel Lotte, which operates Lotte Duty Free, and Hyundai DF, which runs Hyundai Duty Free. The two were selected as preferred bidders by Incheon International Airport Corporation on Jan. 30 and are expected to begin operations in March or April after undergoing license screening by the Korea Customs Service.
 
The move by Shinsegae Duty Free and Shilla Duty Free also marks a stark reversal: A decade ago, companies competed at odds of 14 to 1 for duty-free airport operation licenses. 
 
According to experts, the primary reason for this change is a shift in consumers' habits. During the Covid-19 pandemic, non-Korean shoppers turned to cross-border e-commerce and grew accustomed to buying Korean products online. Meanwhile, domestic customers embraced directly purchasing overseas items from foreign websites.
 
“Korean consumers who were unable to travel abroad for some time grew used to overseas online direct purchases, and with the won-dollar exchange rate remaining high, duty-free shops have lost their appeal in terms of price,” said a duty-free industry source.
 

Visitors to Lotte Duty Free's main Myeongdong branch in Jung District, central Seoul, are seen on Jan. 12. [YONHAP]

 
Although the number of foreign visitors to Korea rebounded last year to a record 18.7 million, duty-free sales have continued to decline. Even during the height of the pandemic in 2021 and 2022, the industry recorded an average of 17.8 trillion won in annual sales. That figure fell to 12.5 trillion won in 2025.
 
Structural problems stemming from regulation have also weakened competitiveness. In October 2013, the Korean government, citing concerns about market dominance, introduced rules limiting duty-free licenses for large corporations to five years and requiring operators to compete for renewal each time.
 
Previously, licenses were valid for 10 years and were almost guaranteed for renewal unless the company had committed any major violations.
 
Following the regulatory change, companies ranging from conglomerates to small- and mid-sized enterprises entered the market, leading to excessive competition, including aggressive bidding for high rents to secure licenses, and difficulty attracting global luxury brands, which are critical to success in the duty-free business.
 

Shoppers are seen waiting in front of Lotte Duty Free's main Myeongdong branch in Jung District, central Seoul, before opening hours on Nov. 20, 2025. [YONHAP]

 
“The duty-free business requires operators to prepurchase goods worth hundreds of billions to one trillion won in advance, and global luxury brands have little incentive to risk working with unproven smaller firms, making it a business better suited to large corporations,” said an industry insider who requested anonymity.
 
“After the regulatory change, negotiations with overseas brands became more challenging, as operators faced the possibility of having to shut down after just five years,” the insider added.
 
Additionally, while sales have declined, fixed costs such as rent have risen, further burdening duty-free operators.
 
“The decline in bulk buyers, known as daigou; the increase in foreign tourists visiting local shops; and the oversupply in the domestic duty-free industry have combined to create these difficulties,” said Jung Yeon-sung, a professor of business administration at Dankook University.
 

Travelers are seen at duty-free shops inside Incheon International Airport's Terminal 1 on Nov. 6, 2025. [YONHAP]

 
The industry is searching for a breakthrough. Lotte Duty Free, which announced last January that it would completely suspend transactions with daigou to address excessive commission practices, resumed such transactions in September of that year. The company ultimately could not ignore these major buyers, who accounted for 7 percent of total sales as of the third quarter of last year.
 
Operators are also pursuing strategies to attract and retain loyal customers. Hyundai Duty Free runs a shuttle bus between Incheon International Airport and The Hyundai Seoul in Yeouido, western Seoul.
 
Transit passengers waiting at the airport can visit The Hyundai Seoul to take part in activities such as Korean cooking classes. Shinsegae Duty Free is focusing on exclusively securing K-beauty and K-food brands that are not available at local shops.


This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY CHOI HYUN-JU [lim.jeongwon@joongang.co.kr]