Duty free sales countrywide fell by -53% year-on-year in May to US$828 million, according to heThe Moodie Davitt Report. The data, published by the Korea Duty Free Association, suggests little has changed from a difficult April but on-location channel checks by The Moodie Davitt Report show signs of the Korean duty free sales slump bottoming out.
The world’s biggest duty free market fell into negative territory year-on-year in February as the COVID-19 pandemic hit inbound and outbound travel. However, the +3% month-on-month increase in total duty free sales for May suggests the worst may be ever. The combination of increasing appetite for luxury cosmetics in China and a higher availability of best-selling products from top-selling brands in South Korea may see an accelerated recovery in coming months.
A leading travel retailer told The Moodie Davitt Report that best-selling SKUs from in-demand brands are selling out within minutes of inventory being made available – reflecting the strong appetite for luxury cosmetics among daigou resellers. However, the daigou are still being highly selective in what they purchase, no doubt erring on the side of caution as demand from consumers recovers in China.
The number of paying customers in store continued to decline in May, plummeting -89% year-on-year to just 467,000. In turn, thought, the reduction in conventional travelling shoppers has accentuated the importance and spending power of daigous. Sales per person to foreigners increased by a remarkable +927% year-on-year in May from just US$843 in May 2019 to US$8,652, much higher even than last month’s heady US$6,687.
Daigou purchases have also helped clear some excess inventory. That spells good news but heavy discounting among Korean duty free retailers means profit margins involving daigou have fallen and the business is ever more competitive as all retailers vie for the reseller business.
May results suggest that the Korean duty free retail industry is likely to show a U-curved recovery as the sector waits anxiously for travel to pick up and large daigou sales to accelerate. There are some positive signs as domestic retail sales of cosmetics continue to grow in China – in May by + 12.9% year-on-year, compared with the COIVD-19-hit February and March numbers of -11.6% and +3.5%, respectively.
That recovery has important implications for the recovery of Korean duty free as pricing for daigou traders remains highly competitive in South Korea.
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