South Korea’s major duty-free operator Lotte Duty Free has increased the commission for Chinese shuttle traders when they bring in group travelers, in a move to more aggressively entice group travelers from China amid sluggish sales continued from last year’s THAAD row.

According to Lotte Duty Free, the company has raised the commissions doled out to “daigongs” -- individual merchants from China who purchase cosmetics to take them back -- from December. These merchants also often partner with Korean travel agents to lure in group visitors.

Commissions for daigongs at Lotte Duty Free Worldtower and Coex stores were increased to 21 percent, about 4 to 6 percentage points higher than original rates.

The increase came just three months after the company reduced the commission at its Myeong-dong, Worldtower and Coex stores, citing profitability issues. 

“A large percentage of duty-free store customers are shuttle traders from China or the package tour groups they bring in. But travelers tend to stay in the northern Seoul area for shopping where most the duty-free stores are located,” said an official from Lotte Duty Free, adding that such a commission increase is intended to help boost sales in two of the duty-free stores located in southern Seoul. 

Lotte Duty Free currently operates eight branches across the country. The main flagship store located in Myeong-dong has top sales, posting 3 trillion won ($2.8 billion) last year. Almost 82 percent of sales were made to foreign shoppers.

The company said Lotte Duty Free’s commissions for travel agents and tour guides -- even after it was raised -- were relatively low compared to other newly opened duty free stores. 

Last year, Lotte Duty Free held a 41.9 percent share among 48 licensed duty-free retailers in the country, a fall of about 6.7 percentage points from the previous year. Industry experts pointed to lagging sales in locations in southern Seoul to the drop in market share.

Industry insiders have viewed Lotte’s increase of commissions for Chinese shuttle traders as portraying local duty-free stores’ heavy dependency on foreign visitors for revenue. 

“For duty-free retailers, commissions are often part of the equation when dealing with daigong shoppers, which in turn eats into profits, even if total sales revenue climbs,” a duty-free agency broker told The Korea Herald. 

“What’s ironic is that duty-free stores also need to maintain a certain level of revenue by working with daigongs, because they are also the ones who bring big-spending tour package groups,” she added. 

By Kim Da-sol (ddd@heraldcorp.com)