Hanwha, Doosan fall prey to winner's curse

By Park Jae-hyuk

The winner’s curse seems to weigh on the Hanwha and Doosan groups, both of which obtained licenses in 2015 to operate duty free shops. The term refers to a phenomenon that an auction winner tends to overpay due to incomplete information,

According to Hanwha Galleria Wednesday, some of the company’s executives and employees decided last month to return 10 percent of their salaries and 13 percent of their bonuses to help the firm overcome a management crisis.

“During a business information session last month, our employees voluntarily decided to return their salaries,” a Hanwha Galleria spokesperson said. “The company will compensate them for the money, after stabilizing the management.”

The spokesperson said the duty free business, which has had operating losses for two consecutive years, was the reason for the employees’ move ― the first since the financial crisis of the late 1990s.

The operator of Galleria Duty Free 63 in Yeouido had a 43.8 billion won ($38 million) loss in its duty free business last year.

Although Hanwha said the salary return was voluntary, critics argue that the employees had no choice because of indirect company pressure.

Doosan Group adopted a strategy opposite to Hanwha’s. The operator of Doota Duty Free gave performance-based bonuses to employees last month, even though the duty free business has suffered heavy losses.

“The bonus was given to appreciate the employees’ efforts to stabilize the duty free store’s management,” a Doosan Group representative said. “The group’s overall businesses showed good performance, even though our duty free business lost money.”

The company’s duty free store in Dongdaemun posted a 16 billion won operating loss in the first half of last year. Its yearly results are yet to be posted, but brokerage houses estimated that the group chalked up a 36 billion won operating loss last year.

Hanwha and Doosan are confident of reaching the break-even point this year, as HDC Shilla and Shinsegae, both of which won licenses in 2015, became profitable last month in their duty free businesses.

But observers are still skeptical about such rosy expectations. Shinhan Investment analyst Kim Gyu-ri said, “The competition will become fiercer this year, as the government selected additional duty free operators in Seoul last year.”

In 2016, the nation’s three largest retailers ― Lotte, Shinsegae and Hyundai Department Store ― obtained licenses to operate new duty free stores in Seoul, pushing the market to saturation point.

Against this backdrop, the leading duty free operators ― Hotel Shilla and Lotte Group ― are seeking to expand in foreign markets.