Chanel withdraws duty-free business in Korea

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French luxury house, Chanel is exiting its duty-free businesses outside Seoul, closing its doors at the Busan Lotte duty-free shop and Shilla duty-free Jeju Fashion Boutique by the end of March, according to an article from Business of Fashion.

The luxury house's move comes after Louis Vuitton's decision to shut all of its downtown duty-free stores in the country by March 2023. The decision to close comes as Chanel seeks to focus on airport duty-free shops. The brand also has plans to open a second store at the airport's Terminal 2 by 2023. Additionally, luxury watch brand, Rolex has also called it quits with seven of its stores in the country last year, leaving only three stores at Seoul, Jeju, and Incheon airports added the article.

According to The Korea Herald, Chanel and Louis Vuitton's decision was attributed to the sharp decline in sales in the Korean duty-free industry after the pandemic hit. The article added over 90% of revenue was now from Chinese resellers, also known as "daigong". Since the pandemic, the revenue has an estimated increase of 40% as compared to before COVID-19.

The Chinese "daigou" trade is a gray market in which surrogate shoppers purchase luxury goods in bulk, and resell it through eCommerce platforms such as Taobao or other unofficial channels. This results in damage to the brand image for the luxury brands as it makes it harder for them to control factors such as product distribution or price policy. It is also not uncommon for these resellers to demand excessive discounts, make frequent refund requests, or even mix in counterfeit products with the resold luxury goods, added the article.

According to a report by McKinsey launched in mid 202, South Korean consumers were seen to have a decline in household income and spending. With growing uncertainty, South Korean consumers expect to continue cutting back on spending across most discretionary categories, and they plan to shop more online for many household essential categories. They are more price conscious and are increasingly looking for ways to save.

MARKETING-INTERACTIVE has reached out to Chanel for additional information regarding its next strategy for the brand after the closure of its duty-free businesses.

Meanwhile, Chanel shifted its global media account from WPP to Omnicom Media Group (OMG) in October last year. The luxury fashion house initially worked with WPP for 21 years. When asked why did the luxury fashion house choose to go with OMG, a Chanel spokesperson told MARKETING-INTERACTIVE that the brand was particularly impressed by the agency's strategic approach, understanding of the brand, and ability to organise around its requirements. " "We thank WPP for their valued counsel over the past two decades supporting our growth," the spokesperson added. The appointment was effective from January 2022 onwards.