Duty free lacking products and deals battles for customers

Shoppers look around a display of sunglasses at a duty-free store. [SHINSEGAE]

A 45-year-old traveler from Jongno District, central Seoul, was surprised after making a duty-free purchase — the duty-free price was higher than the online price.

Traveling to Jeju Island for a two-day trip on June 16, she bought a small bag that she had wanted at a duty-free shop at Jeju International Airport. She got a 10 percent discount for the $103 bag, eventually paying $92.7.

After her purchase, she was left flabbergasted when she searched for the same product on an online mall. The bag was selling for 96,000 won ($72.27.) She tried to get a refund from the duty-free shop, but was rejected.

The story didn't end there. The shopper tried to buy whiskey and cigarettes for her husband, but they were all out of stock or weren't available.

Disappointment continued at the imported cosmetics section as she could not find the most popular products.

"It's duty-free, but it's not even cheap, and there are not even a wide variety of products," the shopper said. "It's not the same as before. I would rather shop from department stores that have member benefits, coupons and provide extra samples."

The duty-free industry was anticipating a big rebound as the Covid-19 pandemic waned, but met an unexpected obstacle. This is because price competitiveness, the biggest attraction of duty-free shops, has bottomed out amid the high exchange rate.

Recently, the exchange rate has soared to 1,300 won per dollar. As of June 17, it was 1,295 won per dollar. A year ago, it was 1,134 won. Even if you buy a product at a duty-free store that has the same price as it was a year ago, it is actually more expensive.

Duty-free stores, which sell products in dollars, are left helpless. Exchange rates are reflected in the price in real time. The biggest appeal of duty-free stores — cheaper prices because it does not pay taxes — has now disappeared.

"During times like these, the increase of the won-dollar exchange rate is greater than discounts offered at duty-free stores, so it is impossible to be competitive," said a duty-free industry insider. "Unlike foreign customers, local customers will inevitably experience the difference in prices more acutely."

The growth of online markets is another threat.

As the consumption trend has rapidly changed from offline to online due to the spread of Covid-19, overseas direct purchases have increased significantly. Major e-commerce businesses such as Coupang and 11th Street are starting overseas direct purchase services, offering 3 day delivery and free deliveries.

According to Statistics Korea, the size of the online overseas direct purchase market last year was 5.1 trillion won, up 26 percent from the previous year.

Duty-free stores are low in stock for various items. Due to Covid-19, duty-free businesses have not been open for a few years, and it is only recently that they are hastily preparing products.

The duty-free industry is considering various options, even trying to compensate for the price increase caused by the change in the exchange rate.

For example, when the dollar exchange rate ranges between 1,250 to 1,300 won, a maximum of 20,000 won is paid back in loyalty points, which can be used as cash equivalents. When it exceeds 1,300 won, a maximum of 35,000 won is paid back. In some cases, up to 25,000 won is paid as membership points for each purchase amount.

"It is difficult to estimate how much inventory to stock because it is difficult to predict demand as the Covid-19 pandemic is not completely over yet," said an insider form the duty-free industry. "There is no solution other than selling rare items that cannot be bought in department stores."

BY CHOI HYUN-JOO [lim.jeongwon@joongang.co.kr]