Rekindled dispute puts Lotte's duty free business at risk

Lotte Group Chairman Shin Dong-bin angrily walks out of his office in downtown Seoul. His commitment to extending Lotte's operating license of two duty free stores in Seoul has hit an obstacle after his elder brother Dong-joo filed a lawsuit against him, claiming the group's leadership. / Korea Times file

Desperate chairman to express commitment on Monday

By Park Si-soo

Can Lotte Group defend its grip on two hugely profitable duty free stores in Seoul?

The answer is still uncertain, but it seems obvious that the rekindled family feud over the group's leadership would be never good for it.

Whether the company will be able to run them for another five years will be decided by the Korea Customs Service (KCS) later this month, or next month at the latest. The KCS has vowed to make a judgment according to a set of strict assessment guidelines to make its decision fair and transparent, and to avoid any controversy over possible external intervention.

A dispute of this kind is not among the stipulated events that would be disadvantageous to Lotte. Yet, given its impact on society, especially in the way it reignited anti-chaebol sentiment, the leadership dispute between incumbent Chairman Shin Dong-bin and his estranged elder brother Dong-joo would certainly be a "negative factor," according to experts and industry insiders.

Lotte is desperate to keep the duty free stores under its roof at any cost because of their huge contribution to its bottom line. The retail-focused fifth-largest conglomerate here raked in 2.458 trillion won ($2.116 billion) in sales from the two outlets last year, which represented 56.6 percent of combined sales of all duty free stores in Seoul.

"It (the dispute) will be disadvantageous to Lotte for sure," an industry insider said. "It's uncertain how much impact the scandal will have on the KCS decision-making process. But one thing I can say for sure is that if the scandal drags on ― and turns ugly ― we will see anti-Lotte sentiment building up rapidly, which will deal a blow to the company."

Lotte officials played down the risk. They said the family dispute had nothing to do with the duty free business and would not put Lotte in a disadvantageous position in retaining the duty free store operation. However, they seem to be worrying a lot about possible fallout from the infighting.

Lotte Chairman Shin Dong-bin reflects this. Despite the worsening conflict with his elder brother, he will make a rare appearance before reporters on Monday to express his commitment to the duty free business and present plans to retain its license and boost the competitiveness of Lotte duty free stores.

Shin expressed his strong commitment to the duty free business during parliamentary questioning last month, describing the duty free business as "Samsung Electronics in the retail sector," highlighting its high profitability.

Days later, Lotte unveiled an ambitious growth plan, focusing on its duty free stores. Under the plan, Lotte will expand its duty free stores and upgrade customer service to secure double-digit growth and attract 13 million foreign customers over the next five years.

"Lotte started engaging in the duty free business in 1980," said Lotte Duty Free CEO Lee Hong-kyun. "We have since made continued investment to make Lotte one of the world's biggest duty free store operators.

"We will make full use of our experience and expertise that we have built up for the past 35 years to boost Korea's tourism industry as well as the nation's economic development."

Four duty free stores in Seoul are up for KCS assessment ― two of them held by Lotte. One is run by Shinsegae, while SK holds the other.

Three companies ― Shinsegae, SK and Doosan ― have thrown their hats into the ring to compete with Lotte.

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