Duty-free underdog Kyung Bok Kung outshines Lotte, Shilla

Kyung Bok Kung Duty-Free Co., a lesser-known travel retailer, has bucked the trend of South Korea's sluggish duty-free retail industry on a downward slide in the absence of big Chinese spenders.

With rapid profit growth, it is expanding its foothold with the launch of new outlets in stark contrast to bigger peers such as Lotte Duty Free and Shilla Duty Free Shop, which have been streamlining operations in the face of declining sales.

Kyung Bok Kung Duty-Free runs outlets only at international airports in South Korea, including two stores at the arrivals terminals of Incheon Airport International, the main air gateway to South Korea.

It primarily targets Korean travelers who tend to shop for gifts on their way back home. The strategy differentiates itself from other domestic travel retailers focusing on downtown stores, dependent heavily on Chinese group tourists.

In 2023, Kyung Bok Kung Duty-Free posted 202.2 billion won ($152 million) in revenue, more than double the previous year’s 95.7 billion won. Its operating profit surged 90% on-year to 19.0 billion won.

The profit surpassed that of the country’s two largest duty-free shop operators. Lotte Duty Free’s operating profit stood at 15.8 billion won in 2023. Shilla Duty Free earned 14.9 billion won in operating profit.

Kyung Bok Kung runs outlets at Incheon International Airport’s two arrivals terminals and one at Gimhae International Airport.

At the outlets within the arrivals area, Kyung Bok Kung sells high-margin products such as cigarettes and alcohol, as well as food, cosmetics, electronic toys and fashion accessories.

ON-ARRIVAL DUTY-FREE SHOPS

In comparison, Lotte, Shilla and other duty-free shop operators are not allowed to open shops at domestic airports’ arrivals terminals due to the laws aimed at protecting small and medium-sized enterprises from their bigger peers.

Additionally, Kyung Bok Kung pays low rents to the airports, compared with the bigger rivals, even considering the smaller size of its shops there. 

In 2023, Kyung Bok Kung spent a total of 70.3 billion won on rent for three arrivals terminals and one at the departure terminal at Incheon International Airport. Shinsegae Duty-Free paid 124.9 billion won on rent for two stores at two departure terminals at the airport last year.

DOWNTOWN STORES SUFFER

Lotte Duty Free and Shilla Duty Free have relied heavily on downtown stores within or next to their flagship department stores.

Before the outbreak of COVID-19, downtown duty-free shops enjoyed a heyday thanks to lavish Chinese spenders on group tours and resellers taking advantage of the price difference by selling duty-free items to Chinese locals.

But China's ban on group tours to South Korea in 2017 has taken a heavy toll on the industry. Chinese travelers' return to Korea following the lifting of the ban last year has failed to rejuvenate the duty-free retail sector.

Reversing the trend, Kyung Bok Kung opened a new outlet at the departure terminal of Cheonju International Airport in North Chungcheong Province on Sept. 12. It also won the bid to open a store at Gimhae International Airport's departure terminal.

“It seems like the era of airport duty-free shops has returned with the end of an era for downtown duty-free shops," said a duty-free store official.

Write to Jae-Kwang Ahn at ahnjk@hankyung.com
 

Yeonhee Kim edited this article.