Duty free license extended to 10 years
By Yoon Ja-young
Duty free shops will be guaranteed an operational duration of 10 years after obtaining licenses from the government. The licenses will also be automatically renewed after this period unless they have violated regulations.
The government announced plans to improve terms for duty free shop operators at a ministers’ meeting, Thursday.
Duty free shopping is a growing business sector here, marking an average 15.1 percent annual growth during the past decade thanks to increasing numbers of tourists from China. Duty free shop is crucial in attracting foreign tourists, with one third of foreign tourists to Korea saying that shopping is their top priority. Total sales at duty free shops here stood at 9.2 trillion won last year, which is 12.3 percent of the global market. Cosmetics took 45.5 percent of the duty free sales, followed by bags at 16 percent and watches at 9.6 percent.
Those wishing to operate a duty free shop should get license from the government. In 2013, the government adopted a new policy, selecting duty free operators every five years through open competition. The measure was based on concern that a few conglomerates are monopolizing the market.
As the expiration of licenses drew closer for four duty free operators, an open competition was held. During this process, SK Networks failed to gets its license renewed for its sole duty free shop at the Sheraton Walkerhill Hotel in eastern Seoul while Lotte Duty Free lost its license for the Lotte World Tower store in southern Seoul. They are scheduled to close down their shops in May and June, respectively, while Shinsegae DF and Doosan won the rights to open new stores.
It led to complaints by duty free operators that they have to make investments in order to open stores without any guarantee that their business will remain after five years.
“Limiting licenses to five years led to hampering of investment, weakening competitive edge of duty free industries as well as causing uncertainties in the employment,” the government said in a media release, pointing out that 90 percent of the 2,122 workers at the two duty free shops that lost license are facing risks of losing jobs. The duty free industry hires around 18,000 people.
It thus decided to extend the license to 10 years from current five years. Even after 10 years, they will have their license renewed if they meet certain criteria.
“It aims at enabling stable and sustainable operation of competitive duty free shops in the long term perspective. It will lessen uncertainties in employment and enhance global competitiveness by leading to increasing investment.”
To avoid oligopoly, the government said it would give disadvantage to operators that are dominating the market. A single player with more than 50 percent market share or three players with combined market share of 75 percent are deemed to be dominating the market according to Fair Trade Act.
The government also decided to raise license commission by up to 20 times. Currently, operators pay 0.05 percent of their total sales as license fees.
The industry has been expecting that Lotte and SK may get a second chance in duty free war because the government is considering increasing the number of duty free shops in Seoul, but the government has delayed the decision until the end of April.