Lotte Duty Free stops sales to Chinese resellers amid worsening profitability

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Lotte Duty Free stops sales to Chinese resellers amid worsening profitability

Chinese cruise tourists look around Lotte Duty Free store in Myeong-dong, central Seoul, in August 2023. [JOONGANG ILBO]

Chinese cruise tourists look around Lotte Duty Free store in Myeong-dong, central Seoul, in August 2023. [JOONGANG ILBO]

 
Lotte Duty Free has halted sales to Chinese resellers — or daigong — starting this year, making the decision after suffering from years of worsening profitability due to high commission fees. 
 
The Korean duty-free company informed major daigong businesses late last year that it would stop selling duty-free items to them starting this month, according to multiple local reports. 
 
Daigong is a Chinese word for small-scale merchants who buy products here on behalf of customers back home, or to sell for a profit. They buy tax-free items in Korea in bulk and resell them on Chinese e-commerce marketplaces.  
 
The resellers have become major customers for local duty-free retailers since 2017 after the Chinese government banned group tours to Korea in retaliation for the deployment of an advanced U.S. anti-missile system in the country. Chinese resellers reportedly accounted for up to half of the sales for Korean duty-free retailers in the post-pandemic era.
 
Despite this, they have also become a major cause of worsening profitability for local duty-free retailers.
 
Lotte Duty Free's move appears to be aimed at improving its profitability despite possibly risking a sharp decline in sales after mounting losses in its business.
  
Korean duty-free retailers, faced with a need to reduce their inventories, have often been forced to sell items to the merchants under unfavorable conditions, at one point refunding or discounting up to half of their product prices as commission fees to the Chinese resellers, leading to losses.
 
In the first nine months of last year, Korea's four major duty-free retailers recorded a combined operating loss of 135.5 billion won ($91.9 million).
 
In a New Year's address, Lotte Duty Free CEO Kim Dong-ha said the company would focus on profitability and reorganize its business portfolio for mid- to long-term growth.
 
Kim outlined improving product competitiveness and increasing individual traveler customers as part of such efforts.
 

BY SARAH CHEA, YONHAP [[email protected]]
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