A Surge in Foreign Tourists, Yet Duty-Free Sales Stay Flat

Inbound International Tourists Up 21%,
But First-Half Duty-Free Sales Grow Only 1.8%
Expansion of FIT and High Exchange Rate Push Per-Customer Spending Down 3.2%
Industry: "Revise Exemption Limit and Patent Royalties"
Experts: "Product Competitiveness Must Be Raised"

The domestic duty-free industry’s sales in the first half of this year remained essentially flat. Although the number of inbound international tourists to Korea increased by over 20%, duty-free revenues grew only marginally. This was due to the changing consumption patterns of tourists, driven by the rise of free independent travelers (FIT), and weakened price competitiveness caused by the high exchange rate.

According to the Korea Duty Free Shops Association on July 30, sales at domestic duty-free shops in the first half of this year reached 6.4752 trillion won, a 1.8% increase from the same period last year (6.3623 trillion won). Compared to the first half of 2024 (7.3969 trillion won), however, this marks a 12.5% decrease.

A panoramic view of the 11th floor of Shinsegae Duty Free Shop Myeongdong branch.

Tourist Numbers Rise, Sales Remain Sluggish

During the same period, Korea Tourism Organization data shows that the number of inbound foreign tourists reached 10,709,919, up 21.3% from last year's 8,825,967. In contrast, duty-free sales to foreigners increased by only 11.2% to 4.9968 trillion won. The average purchase amount per foreign customer (per capita sales) was 751,900 won, a 3.2% decrease compared to last year. While the number of tourists increased, individual spending actually declined.

Domestic demand shrank further. Sales to Korean customers in the first half were 1.4783 trillion won, down 12% from last year, and the number of domestic shoppers fell 11.5% to 8.41 million. Over the period, outbound Korean travelers totaled approximately 14.96 million, an increase of 2.7% year-on-year, but duty-free sales still declined.

Industry officials explained that even the increase in won-denominated sales was a result of the high exchange rate. Since most duty-free products are sold in U.S. dollars, an increase in the won-dollar exchange rate means that won-based revenues rise even if the same number of goods are sold. An industry insider stated, "When calculated in U.S. dollars, first-half sales actually fell about 7% year-on-year. Looking at the figures in won gives the impression of recovery, but actual consumption has not recovered."

Domestic duty-free sales, once called a "golden goose" of the Korean travel industry, hit an all-time high of 24.8586 trillion won in 2019. However, sales plunged to 15.5052 trillion won in 2020 due to the impact of COVID-19, and even after tourists returned, remained at 13.7586 trillion won in 2023 and 14.2249 trillion won last year. The industry expects this year’s annual sales to also hover around 13 trillion won.

Group Tours Fade Away, Foot Traffic Shifts to Seongsu-dong

Industry observers see the biggest reason in the shift in tourists’ consumption behaviors. Korean duty-free shops enjoyed a golden age after large numbers of Chinese group tourists arrived following the 2012 Senkaku Islands dispute. At the time, city duty-free visits were naturally included in tour itineraries, driving spending. Now, the situation has changed. Free independent travelers have become the mainstream, and tourists are increasingly visiting stores of their own choice, such as Olive Young, Daiso, and select shops in Seongsu-dong, rather than following prearranged group schedules.

Price competitiveness has also weakened. Duty-free shops historically secured their pricing advantage through exemptions from tariffs and value-added taxes, but the sharp rise in the won-dollar exchange rate has increased the burden of U.S. dollar-priced items in won terms. Among some luxury products, there is even a perception that department store discount events now offer better deals than duty-free shops. In addition, the rising price of international oil has pushed up airline fuel surcharges, further reducing the budget travelers have for shopping, according to industry analyses.

Patent Royalties Should Be Based on Profitability

The government has begun institutional reforms as well. Since the start of this month, Korea Customs Service implemented a revised notice on “licensing and operations of bonded sales stores” allowing foreign tourists to pick up domestic cosmetic and food products directly from city duty-free shops, bypassing airport pickup counters. For Korean customers, the procedure to exchange duty-free goods purchased within the $800 exemption limit for a different color or size has been simplified, allowing postal exchange after returning to Korea. In addition, since 2020, the government has provided a 50% reduction in the annual patent royalty fee, which is imposed on duty-free shops nationwide based on their annual sales scale under the Customs Act.

However, the industry believes that improving consumer convenience alone is insufficient to revive the stagnating duty-free market. The industry is calling for an increase in the current $800 traveler exemption limit and a restructuring of the patent royalty system so that fees reflect actual profitability rather than sales volume alone.

Experts stress that industry-led changes must accompany government support. Professor Ra Kong-woo of Jeju National University commented, “In the past, a business structure centered on Chinese group tours and customer referral commissions powered the growth of duty-free shops, but now the increase in free independent travelers has fundamentally changed spending patterns. Many foreign tourists now simply buy souvenirs at places like Olive Young or hypermarkets, so duty-free shops have lost some of their former attraction.” He added, “The 50% reduction in the patent royalty fee eases industry burdens, but institutional reforms alone have limits. Duty-free operators also need strategies to draw in consumers through the expansion of mid-range brands and the differentiation of their product offerings.”

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