Lotte, Hotel Shilla hit headwinds in duty free race

Shoppers crowd a duty free store in Seoul. Seven big companies are vying to win the licenses to run two new duty free stores in Seoul. / Korea Times file

By Park Si-soo

Lotte Group and Hotel Shilla are facing a major challenge against their ambitious bid to run new duty free stores in Seoul as a lawmaker raised issues of the license strengthening their dominance further.

The two firms are already the nation’s leading duty free store operators, accounting for a combined 81.3 percent of the market by sales, said Rep. Min Byung-doo of the main opposition New Politics Alliance for Democracy, citing data from the Korea Customs Service (KCS). Lotte alone has 50.76 percent, the lawmaker said.

The two firms and five other big companies are vying to win the rights to run two new duty free stores in Seoul. The other contenders are Shinsegae Group, Hyundai Department Store, Hanwha Group, SK Networks and E-Land.

The KCS will announce winners in July.

The current fair trade law bans a company from having a market share of more than 50 percent or the top three companies from having a combined 75 percent or higher.

“Giving the two firms a green light would damage the fairness of the market,” Min said in a statement, calling on the KCS to disqualify the two. “Our economy will be able to grow sustainably only when the market is open to competition.”

Hotel Shilla, which formed a consortium with Hyundai Development to compete in the seven-way race, refused to comment on the issue.

Lotte refuted the lawmaker’s claim meanwhile.

“The fair trade law was basically designed to protect domestic industries. A major portion of our sales at duty free stores are generated by foreign shoppers. Plus, sales generated by selling products to foreign shoppers are counted as export sales under the law. Thus it’s inappropriate to claim we are unqualified, citing the fair trade law,” a Lotte spokesman said.

As of 2014, Chinese shoppers contributed to nearly 70 percent of Lotte’s duty free sales, 5 percent by Japanese and 25 percent by Korean shoppers, according to Lotte.

The KCS refused to comment on the issue because its contender assessment is under way.

“We have formed a committee comprised of government officers and private experts to ensure a fair and transparent assessment,” a KCS official told The Korea Times by phone. “We will discuss the fair trade law in question with the Fair Trade Commission.”

Meanwhile, a local brokerage house predicted on Friday that SK Networks and Shinsegae will grab the duty free business licenses.

Kim Tae-hyun, an analyst at Taurus Investment and Securities, claimed the two firms have higher chances than the other contenders, citing the results of his self-evaluation of contenders based on KCS’s assessment guideline.

The duty free business is one of a few upbeat retail segments in Korea thanks to a massive influx of deep-pocketed Chinese travelers.

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.