The Korea Herald


Demand for luxury goods still high in Korea

By Korea Herald

Published : Dec. 25, 2011 - 18:18

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Foreign luxury brands continue to increase prices despite economic slowdown

Lee, a 29-year-old office worker, breathed a sigh of relief recently after she passed through the arrival gate at the Incheon International Airport without any tussle with customs officials.

Coming back from a business trip to Paris, she was carrying a 1,660 euro ($2,160) Chanel bag within her luggage. But she didn’t report to customs the luxury item in excess of the $400 duty free allowance.

“Because it’s a random check-up, I wanted to avoid paying taxes if possible,” she said, declining to give her full name.

“If I had had to pay the taxes, it would have been OK because my purchase in Paris is still far cheaper than here.”

Koreans’ fervor for luxury goods shows no sign of waning and some people appear willing to become tax dodgers to purchase high-end items at cheaper prices.

With luxury brands sticking to a premium pricing policy in the profiting Korean market, a growing number of local consumers are turning to their European outlets.

“Considering tax refunds I received at the airport in Paris, I feel I have earned a flight ticket to there,” Lee said. There was almost a 1 million won difference in the prices of Lee’s Chanel bag sold in Paris and those sold in Seoul.

Consumers had expected a moderate price cut on European luxury goods as the free trade pact between Korean and EU took effect in July. 
People walk past a Chanel shop in downtown Seoul. (Lee Sang-sub/The Korea Herald) People walk past a Chanel shop in downtown Seoul. (Lee Sang-sub/The Korea Herald)

Most brands, however, have continued to increase their product prices, citing soaring material costs and foreign exchange rates. For instance, French brand Chanel raised prices by more than 20 percent this year.

In the case of the steady-seller 2.55 quilted bag, it sells for 6.07 million won in Korea, while its U.S. and France prices stand at 4.85 million won and 4.71 million won, respectively.

Some brands such as Gucci explain that their prices are not affected by the FTA as their products are shipped from outside the eurozone, such as Switzerland and Hong Kong.

Meanwhile, under the FTA, Korean travelers can enjoy an 8-15 percent tax exemption if they verify the EU origin of purchased products worth less than $1,000.

A growing number of travelers want to enjoy the tax exemption or choose to pay due taxes. But many of them try to avoid paying taxes, prompting a number of shady tricks shared online.

It is a common trick for a couple or friends to switch their purchased items to make it harder for customs officials to track down the original purchaser.

Some people fill out two customs papers in case they are stopped by the officials. The taxation agency imposes higher fines on those who fail to report their excessive purchases in advance.

One of the newest tricks is reporting a fake item as their own before leaving the country. Then, the traveler purchases an original one abroad and passes through the customs in Korea without further checkups.

According to the Korea Customs Service, the total amount of taxes imposed on travelers who are stopped by customs officials for luxury purchases surpassed the 10 billion won mark for the first time this year.

The agency detected cases worth 10.2 billion won, a 23 percent increase from 8.3 billion won a year earlier and the highest-ever figure since the opening of Incheon International Airport.

Considering that overseas travel increased about 4 percent this year, Korean travelers spend more in abroad, the customs agency said.

Designer bags accounted for 6.2 billion won, the highest increase of 36 percent, followed by watches with 1.7 billion won and alcohol with 500 million won.

Civic groups say such illegal cases could not be rooted out easily without fundamental solutions such as lowering the prices of luxury goods by diversifying distribution channels.

Luxury brands hold “press sales” on a regular basis, offering more than 50 percent discounts exclusively to its employees and fashion industry people.

“It’s ironic. We introduce a new trend every season. But many of us benefit from special bargains. Most of my colleagues shop for luxury goods abroad,” said a fashion editor who acquired a Burberry shoulder bag for 70 percent off.

By Lee Ji-yoon (