Competition heating up for duty free licenses


Shin Dong-bin, Lotte chairman	Lee Myung-hee, Shinsegae chairwoman	Chung Ji-sun, Hyundai Department Store CEO


Lee Bu-jin, president of Hotel Shilla	Chung Mong-gyu, CEO of Hyundai Development	Kim Seung-youn, Hanwha chairman

By Park Si-soo

Lotte Group, Shinsegae Group, Hyundai Department Store and several other major companies have thrown their hats into the ring for licenses to run new duty free stores in Seoul.

Other contenders include Hotel Shilla, Hanwha Group, Hyundai Development and SK Networks.

They have unveiled ambitious investment plans in recent weeks to win the competition supervised by the Korea Customs Service (KCS). The KCS plans to endorse four new duty free stores by July ― three in Seoul and one on Jeju Island.

All eyes are on who will grab the three tickets allocated to Seoul, the biggest tourist attraction in Korea. Contenders are trying to sway the license issuer by promoting their plans as the best in terms of management ability, business infrastructure and social contribution ― key issues subject to assessment.

The duty free store business is booming here, largely thanks to a massive influx of deep-pocketed Chinese travelers. Another reason is sluggish domestic consumption amid a prolonged economic slowdown, which has undercut the bottom lines of major retailers.

Experts say the duty free business is one of a few upbeat retail segments.

Hanwha Group, led by Chairman Kim Seung-youn, is the latest contender into the race. Its department store affiliate, Hanwha Galleria, said Thursday it planned to open a 9,900-square-meter luxury duty free store in 63 Square in Yeouido, one of Seoul's landmark skyscrapers. The building is on a highway linking Seoul and Incheon International Airport.

"This would be the best location in terms of accessibility," a Galleria official said. "Currently, major duty free stores are located in central Seoul. Placing one in Yeouido will help extend areas that benefit from foreign tourists' shopping sprees."

Hanwha said an estimated 3.2 million foreign tourists visit Yeouido a year.

Shinsegae said early this week it would establish an affiliate fully dedicated to the duty free store business.

"No duty free store runs independently," a Shinsegae official said. "Ours will become the first independent one, meaning we will be more flexible and innovative in operating the duty free business."

Hyundai Development, a major construction firm, recently formed a partnership with Hotel Shilla as part of efforts to win a ticket. They said they would open the nation's biggest duty free store at a giant mall in Yongsan, central Seoul. Yongsan is a transportation hub with easy access to several subway lines and the KTX express train line stretching to southwestern regions of the nation. A subway line linking Yongsan and Incheon International Airport is under construction.

"The cooperation of the two companies will create a significant synergy," a Hyundai Development official said.

Hyundai Department Store recently unveiled an ambitious plan to open its first duty free store in Samseong-dong, an affluent business district in southern Seoul.

Lotte Group, the operator of the nation's biggest duty free shop chain, jumped into the race recently, showing off its proven record.

SK Networks, which runs Walkerhill Duty Free, declared its bid in March, saying it would open an outlet in northwestern Seoul where people could enjoy shopping and entertainment at the same place.

An estimated 13.6 million foreigners visited Korea in 2014. This is expected to jump to 18.7 million in 2018, according to the Korea Tourism Organization (KTO).

Chinese tourists account for nearly 35 percent, Japanese 22 percent and Americans 6 percent, the KTO said. A Chinese tourist spends $2,272 in Korea, on average, compared with $990 a head spent by Japanese tourists, it said.

The rising influx has boosted sales at local duty free stores.

The combined sales of 43 duty free stores here reached 8.3 trillion won ($7.58 billion) last year, up 22 percent from 6.8 trillion won in 2013, according to the Ministry of Strategy and Finance. Of the total, sales at shops in Seoul and other cities jumped 32 percent year-on-year, while those at airports and seaports moved up nearly 6 percent.

Experts say the heated race reflects sluggish domestic consumption.

Inflation-adjusted private consumption increased only 1.8 percent last year, marking the lowest growth since 2009, according to the Bank of Korea. It has remained under 2 percent for three consecutive years.

Lotte and other major department stores experienced steep falls in sales last year, for the first time in a decade.

Their estimated sales stood at 29.2 trillion won last year, down 1.9 percent from 29.8 trillion in 2013, according to data from Statistics Korea and the companies.

Analysts said the stores took the brunt of the prolonged economic slowdown and sluggish domestic consumption, as well as being hit by a boom in online shopping and direct buying from online shopping malls hosted overseas.