South Korea DF moves beyond its reliance on bulk resellers toward a more customer-centric model
Duty free shopping remains a key pillar of South Korea’s retail industry, with major operators refining their offerings to attract global travelers
South Korea’s government recently announced sweeping reforms designed to reinvigorate the duty free sector. Rolling out this spring, the changes create a more supportive regulatory framework for operators, including a 50% reduction in licensing fees and the removal of a longstanding two-bottle limit on liquor purchases. These moves form part of a broader national strategy to revitalize a market still stabilizing post-pandemic, amid shifting tourist dynamics and evolving shopping behaviors. Industry insiders welcome the reforms but stress that further action will be needed to fully improve the sector’s potential.
Relief, with caveats
The latest government interventions have provided a much-needed jolt of optimism to a sector still navigating turbulence since the pandemic. Halving licensing fees and easing liquor restrictions are expected to spur investment and encourage consumer spending. Leading players such as Lotte Duty Free and The Shilla Duty Free have voiced strong support for the changes so far.
Nam-Gung Pyo, Head of Marketing at Lotte Duty Free, believes that “the policy changes are expected to have a positive impact on both Lotte and the wider industry.” A representative at The Shilla Duty Free feels similarly, stating that “eliminating liquor bottle restrictions will significantly enhance the customer experience” and adding that the 50% reduction in licensing fees will also help address management challenges.
Yet key constraints persist. A US$400 exemption for liquor and US$800 overall duty free cap per traveler remain unchanged, an issue that continues to hamper growth. Brad Kim, Editor-in-Chief of the South Korea-based TRNDF.com, suggests raising these limits to somewhere between US$1,200 and US$2,000 to boost spending.
In the interim, operators are recalibrating by offering smaller bottle formats, bundling multi-bottle deals, and introducing interactive, experience-led campaigns to better engage customers under the new reforms and existing limits.
As demand shifts beyond K-Cosmetics, shoppers seek cultural and trend-driven experiences at the Shilla Duty Free
An uneven recovery
The latest regulatory changes arrive at a time of continued volatility for South Korea’s duty free sector. In 2024, the country welcomed 16.37 million foreign visitors, which is an encouraging 93.5% of pre-pandemic levels. Yet duty free sales remained sluggish, reaching just 57.2% of the sector’s 2019 peak, when revenues had hit a record KRW24.85 trillion (US$16.4 billion), driven largely by Chinese tour groups and bulk-buying daigou resellers.
“The loss of Chinese group tourists during the pandemic led to reliance on bulk buyers, or daigou,” Kim explains. “The government temporarily lifted bulk sales restrictions, but with pre-pandemic regulations reinstated in early 2024, the industry is now moving away from daigou dependence.”
Fast forward to February 2025, and the picture remains mixed. Duty free sales (excluding inflight) rose 4.8% month-on-month to KRW1 trillion (US$680 million), while footfall fell 8.4% to 2.1 million customers. While the sales uptick signals some recovery compared to last year, overall performance still lags significantly behind the industry's pre-pandemic peak.
In addition to pressures stemming from the previous reliance on daigou, several other factors are at play, including the rise of free independent travel versus group tours and China’s “guochao” trend that favors domestic Chinese brands over foreign brands.
Amid these shifts, operators are facing challenges. Shinsegae Duty Free shuttered its Busan downtown store in January, and Hyundai Duty Free will close its Dongdaemun outlet in Seoul this July. At the same time, high-end luxury brands such as Gucci, Cartier and Louis Vuitton have begun withdrawing their presence from duty free outlets.
With relaxed regulations, The Shilla Duty Free is expanding its liquor selection through multi-bottle packages and immersive tasting experiences
From volume to value
Eager to change the trajectory, duty free operators are shifting their focus from volume to profitability. Lotte Duty Free, for example, made a decisive move to halt bulk sales to daigou traders in January 2025. “While we grew through daigou sales during the THAAD crisis and COVID-19, rising commission rates hurt profitability,” states Pyo. Lotte is now directing its efforts toward targeting new customer segments, fine-tuning its pricing and enhancing its product assortment. “We aim to transform the market structure and establish a more sustainable business model,” states Pyo.
The Shilla Duty Free is also moving away from inefficient wholesale channels to a more targeted retail strategy. “We’re prioritizing agile responses to changing conditions and focusing on building internal stability,” says a representative from The Shilla. To that end, the company is expanding its brand portfolio, developing exclusive and premium product lines, and enhancing its retail environments with immersive pop-ups and interactive event zones.
Lotte Duty Free participated in the 2025 Korea Grand Sale, organized by the Ministry of Culture, Sports and Tourism of Korea
Signs of reinvention
Amid ongoing reforms, operators are leaning into innovation and strategic partnerships to attract a broader traveler base. At Lotte Duty Free, newly appointed CEO Dong-ha Kim is leading diversification efforts, supported by a newly established marketing division focused on attracting both high-spending individuals and independent travelers. One initiative includes preparing for the anticipated return of Chinese tour groups once visa-free entry resumes later this year, with targeted promotions integrated into platforms such as WeChat Pay. The company is also broadening its brand portfolio through collaborations with labels such as Polo Ralph Lauren, Maison Kitsuné, and Dassai.
In parallel, Lotte is partnering with travel agencies to develop tailored Korean travel experiences. For example, a recent agreement with the Busan Tourism Organization aims to strengthen tourism in the region. These efforts are already showing early promise, with cruise passengers flocking to Lotte Duty Free’s Busan store, attracted by exclusive perks, including Gold membership cards and QR-code-enabled discounts across the rail network.
The Shilla is also evolving, securing coveted brands and enhancing services to reflect changing customer preferences. At Incheon International Airport, The Shilla has introduced new collaborations with Augustinus Bader, Lancome, and LOEWE, and opened a TimeVallee Swiss watch boutique at its Jeju Island store. But shoppers are seeking a truly Korean experience, as well. “Demand has extended beyond K-Cosmetics to K-Fashion and Korean lifestyle items,” says The Shilla Duty Free’s spokesperson. “Shoppers now seek immersive experiences tied to Korean culture and trends.”
South Korea’s duty free sector remains in recovery, but signs of reinvention are taking shape. With regulatory changes unlocking new strategic opportunities and operators pivoting from high-volume models, the industry is laying the groundwork for a more profitable future.
