Why Are Luxury Labels Cheaper Online?

  • By Song Hye-jin

    February 18, 2022 13:04

    The Korean market for luxury products was worth a staggering US$14.2 billion last year, up 4.6 percent compared to 2020, according to market researchers Euromonitor.

    Purchases of overpriced bling soared due to the coronavirus pandemic, when the rich had fewer spending opportunities, and 11 department stores saw sales surpass W1 trillion last year.

    But Korean consumers pay anywhere from 10 percent to 40 percent more for the same luxury goods than they would overseas because importers here slap huge margins on them.

    Savvy consumers shop online. Kwon So-jin, a 32-year-old office worker, bought a Tom Brown cardigan from a U.S. online retailer for her husband's birthday. It costs W1.95 million in Korea but just W1.14 million online, so even with the W270,000 tariff, VAT and shipping, the final price tag was still 28 percent cheaper than here (US$1=W1,198).

    "I always compare domestic and overseas prices of products because there's such a big difference," she said. 

    The longer delivery times are worth the savings. According to Statistics Korea, purchases through overseas online retailers last year surpassed W5 trillion for the first time ever and surged 26.4 percent compared to 2020. Clothing and accessories accounted for W2 trillion of the total.

    The Korea Consumer Agency said a survey last year showed consumers here believe products are around 25 percent cheaper from foreign online retailers than in Korea.

    Yet importers insist they have no choice but to slap huge margins on goods due to high operating costs as well as tariffs and delivery fees.

    One staffer with a major importer said, "Department stores charge 20 to 30 percent in fees to sell our products, plus we have to cover advertising and store overheads."

    But industry insiders say big businesses and department stores in Korea compete fiercely for exclusive import deals with foreign luxury brands, which ends up costing them a lot of money. They end up agreeing to unrealistic volumes and expensive advertising to bring in popular luxury brands and pass the cost on to the customer.

    Another reason is simply that demand seems insatiable, so people will pay whatever is asked. The head of a foreign luxury brand's Korean branch said, "The market is changing in Korea and China where the more expensive products are, the higher the demand is. For instance, handbags must cost at least W9 million and coats more than W4 million to be considered a 'luxury' product. That means lower-tier brand prices are also rising." 

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