Why Duty-Free Shops Thrived in 2016, but Department Stores Will Lead in 2026 [Weekend Money]

Duty-Free Shops Thrived in 2016 Amid Package Tour Boom
Department Stores to Benefit from Individual Travel Trend in 2026
Rising Foreign Shopper Numbers Give Ample Upside Potential for Department Store Stocks

There is a clear divergence in fortunes between department stores and duty-free shops when it comes to foreign visitors. While duty-free shops were the main beneficiaries of the rise in foreign visitors in 2016, the momentum has now shifted to department stores.

According to Hana Securities, the impact of inbound foreign visitor momentum on duty-free shops and department stores shows a stark contrast between 2016 and 2026.

In 2016, inbound foreign tourism was predominantly focused on ‘Seoul’ and ‘package tours’ organized by travel agencies, with duty-free shops being a must-visit stop. This was when Korean cosmetics were rapidly gaining popularity among Chinese tourists, and cosmetics accounted for up to 80% of duty-free shop sales. The cosmetics segment was led by luxury brands such as Sulwhasoo and Whoo.

Paek Jongmin, a researcher at Hana Securities, explained, “At that time, the momentum of inbound foreign visitors was concentrated in Hotel Shilla and Hotel Lotte’s duty-free shops, which operated the largest duty-free stores in Seoul. Luxury cosmetics brands like Amorepacific and LG Household & Health Care were the main beneficiaries among brand companies.”

At the time, there was little correlation between inbound foreign visitors and department store sales. Even when the number of Chinese visitors exceeded 8 million, the proportion of foreign shoppers in department store sales was around 1%. While the share of foreign sales at Lotte Department Store in Myeong-dong sometimes surpassed 10%, this was limited to a few select locations and remained negligible compared to the total sales of Lotte Shopping’s department store business.

However, in 2026, the momentum of inbound foreign visitors is showing a very different pattern from a decade ago. ‘Individual travel’ has become the norm, and although Seoul still commands a high concentration, foreign visitors are now spreading nationwide to places like Busan, Gyeonggi Province, Gyeongju, and Gangwon Province. Along with flagship stores in areas such as Myeong-dong and Seongsu, department stores with good downtown accessibility have emerged as a key shopping channel. These visitors mainly purchase luxury goods, as well as domestic and international fashion and accessory products. Paek noted, “The proportion of department store sales from foreign shoppers has recently risen to as high as 7% of total sales, and year-on-year, department store foreign sales are doubling. This is raising the overall department store growth rate by roughly 3 percentage points.”

There is a view that this shift in foreign visitor consumption patterns, compared to 2016, is an important factor lowering the valuation of duty-free shops while boosting the valuation of department stores. Paek commented, “At the time, Hotel Shilla’s valuation soared, with its 12-month forward price-earnings ratio (PER) exceeding 20 times and even approaching 30 times. Chinese outbound tourism was just beginning, and Korea, being geographically closest, fueled even greater expectations. These positive factors directly translated into a valuation premium.”

Conversely, department store valuations were declining. Their 12-month forward PER even struggled to maintain 10 times. Paek explained, “With the spread of smartphones, consumer channels were rapidly shifting from offline to online, making it difficult for existing stores to achieve even 5% growth. Other than low-margin luxury goods, there was little to expect in terms of sales improvement at department stores.”

However, in 2026, Hotel Shilla’s valuation is inevitably lower than it was in 2016. Paek said, “Although profitability is improving rapidly, the momentum from inbound foreign visitors is more dispersed and it is not easy to achieve sales growth rates above 10%. The market will seek appropriate valuations, but it is clear that the valuation level will be lower than in 2016.”

Department stores have now acquired a new growth driver. Paek emphasized, “It is still difficult to gauge the upper limit of inbound foreign visitors to Korea. Considering the effect of exchange rates and the recent expansion of the Korean Wave, many believe that reaching 30 million is feasible. Furthermore, the rise of Korea’s superior medical services and the associated boom in beauty and medical tourism are becoming major new pillars. In Japan, for instance, inbound foreign visitors already surpassed 40 million in 2025.”

Currently, Shinsegae, Hyundai Department Store, and Lotte Shopping are being re-rated in terms of both performance and valuation. Paek concluded, “While we need a more detailed analysis of the specific characteristics, scale, and consumption patterns of today’s foreign visitors and their impact on the domestic consumer economy—one thing is clear: department stores are among the biggest beneficiaries. The average 12-month forward PER for the three major department store groups is now about 10 times, with an average price-to-book ratio (PBR) of around 0.5 times, indicating ample potential for stock price appreciation.”

This content was produced with the assistance of AI translation services.