Positive Disruptors

Destination Duty Free Land

South Korea’s leading duty free retailer, and world number two, is generating some extraordinary spends as it pivots amid the pandemic to sell via hugely popular ‘Flights to Nowhere’ and give travel-starved consumers a taste of what they have been missing out on.

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Since Asiana Airlines offered the first destination-less flight from Korea on 12 December, so-called ‘Flights to nowhere’ have become a novel way for passengers to experience the joy of travel while also benefiting from duty free allowances. And Lotte Duty Free has adapted its business with verve and imagination to tap into consumers’ appetite to purchase. Duty free shopping on so-called ‘Non-landing tourism flights’ generated average sales of KRW1.2 million (US$1,075) per customer for Lotte Duty Free in the first quarter of 2021, with the March figure rising to KRW1.62 billion (US$1,450), the retailer revealed. With outbound and inbound travel heavily restricted by the pandemic, since December seven airlines have operated 75 flights to nowhere that have attracted about 8,000 passengers, reported Yonhap News Agency, citing the Ministry of Land, Infrastructure and Transport. “As with overseas departures, duty free purchases are available, and more and more passengers use it as an opportunity for shopping,” Lotte Duty Free said. “The unit price of passengers on a non-landing tour is three times higher than that before the coronavirus. The tariffs imposed on excess [i.e. above the duty free allowance] can also be reduced by -30% (up to KRW150,000/US$134) through voluntary reporting, so the burden is not high.”

Beauty category dominates

Cosmetics and fragrances were Lotte Duty Free’s dominant category across all channels in the first quarter, generating 45% of total sales, followed by fashion and leather with 29%, watches and jewellery at 12%, and alcohol and cigarettes with 5%.

A Lotte Duty Free spokesman said, “Before the coronavirus, cosmetics and perfumes were 35% of total sales of Korean customers, and watches and jewellery were 5%. So we are selling a lot of watches, jewellery, bags, shoes etc.”

Online sales generated 60% of Lotte Duty Free’s sales in the quarter, followed by downtown shops with 36% and airport stores at just 4%. The retailer’s withdrawal from its liquor & tobacco operation at Incheon International Airport Terminal 1 in early March was a major factor in that low percentage. Currently, all flights for non-landing tourist flights are departing from Incheon International Airport T1.

Gen Z consumers represented some 50% of shoppers, while females accounted for 56% of purchasers.

The pandemic’s impact – and Lotte Duty Free’s swift adaptation to it – can be seen in the dominant share that online sales now represent. In March 2019, when Martin Moodie interviewed Lotte Duty Free CEO Kap Lee, ecommerce represented 25% of the retailer’s sales, roughly double the share of five years earlier. For Q1 2021 the channel has climbed to 60%.

In mid-March, Lotte Duty Free hosted an event that offered first-come, first-served, non-landing tour tickets to top customers of the Myeong-dong downtown store when purchasing more than US$550 of goods. The Air Busan flight that departed from Incheon on April 3 and 10 and returned over Japan’s Tsushima Island (the setting for the smash-hit PlayStation 4 game Ghost of Tsushima) received a strong response, with a total of 260 seats sold out across both days.

Passengers using these charter flights spent around KRW1.2 million on average, on par with the standard non-landing flights, but customers over 40 accounted for 86% of the total while 62% were females. The shopping characteristics of VIP customers at Lotte Duty Free were “remarkable”, the retailer said. Fashion and leather was the top category, accounting for 56% of sales, followed by cosmetics and perfumes with 24%, liquor and cigarettes (6%), and watches and jewellery (4%).

Lotte Duty Free said that it is considering additional charter operations thanks to the enthusiastic support for the concept.

The travel retailer has also introduced a range of marketing activities such as giving airline affiliates money and free gifts, upgrading the membership level of Lotte Internet Duty Free, and hosting inflight prize draw events in connection with all seven Korean airlines that conduct non-landing tourism flights. At the end of April, Lotte Hotel and Asiana Airlines will launch a product that combines hotel accommodation, air travel and duty free shopping.

Who would have imagined at the start of 2020 that Lotte Duty Free would become an inflight retailer? But this is not inflight shopping as we knew it, as Lotte Duty Free pivots quickly to adapt to a world where barely anything is normal.

Destination Duty Free Land: Two passengers show off their purchases

This graph shows the impressive month-on-month sales per customer growth generated by the ‘non-landing tourism flight’ concept

Currently, the duty free limit per Korean national is US$600 (around KRW670,000), and passengers can receive additional tax- and duty free benefits up to a carton of cigarettes, 1 litre of alcohol under US$400, and a 60ml fragrance.

Some 1,600 such passengers purchased from Lotte Duty Free in March, approximately three times higher than in December 2020 when non-landing tourist flights first began. March sales surged by +25% compared to the previous month, driven by heavy promotional activity held in association with the seven participating airlines, Lotte Duty Free.

Aventus from Creed; Ultra HD Pressed Powder Set by Make Up for Ever; The POREfessional Set from Benefit, Biotherm Homme’s Aquapower Set; and UV Expert Milky Bright by Lancôme top the best-selling list from the online sales to passengers on the ‘Flights to nowhere’

Following the Ministry of Land, Infrastructure and Transport’s recent announcement that it would allow non-landing tourism flights at regional international airports such as Gimpo, Gimhae and Daegu airports from May, Lotte Duty Free, which has stores in Gimpo (Seoul) and Gimhae (Busan) airports is partially re-opening the shops in accordance with the planned flight schedules.

Lotte Duty Free Head of the Platform Business Division Lee Jung-min said, “Lotte Duty Free plans to continue to showcase various events based on the industry’s largest airline network to meet the duty free shopping demands of Korean customers.”

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The Moodie Davitt eZine Issue 294 | 28 April 2021

The Moodie Davitt eZine is published 15 times per year by The Moodie Davitt Report (Moodie International Ltd). © All material is copyright and cannot be reproduced without the permission of the Publisher. To find out more visit www.moodiedavittreport.com and to subscribe, please e-mail sinead@moodiedavittreport.com

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