Seoul, Jan 12 Lotte Duty Free, a major South Korean duty-free retailer, has suspended sales to Chinese resellers starting this year, becoming the first to do so in the local industry facing worsening profitability due to high commission fees, industry sources said on Sunday.
The company informed major Chinese resellers late last year that it would stop selling duty-free items to the merchants starting this month, according to the sources.
The Chinese merchants are a major player in the local duty-free market, purchasing large quantities of duty-free items at a relatively cheap price to resell them in China and Southeast Asia.
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.
The resellers have become a major customer for local duty-free retailers since 2017 after the Chinese government banned group tours to South 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 sales for South Korean duty-free retailers in the post-pandemic era.
They, however, have also become a major cause of worsening profitability for local duty-free retailers.
South Korean duty-free retailers, faced with a need to reduce their inventories, have often been forced to sell items to the merchants under unfavourable conditions, at one point refunding or discounting up to half of product prices as commission fees to the Chinese resellers, leading to losses.
In the first nine months of last year, South 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 reorganise its business portfolio for mid-to long-term growth.
Kim outlined improving product competitiveness and increasing individual traveler customers as part of such efforts.
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