Hotel Shilla's hanok hotel project delayed amid duty free sales slump

Hotel Shilla in Seoul / Courtesy of Hotel Shilla

Shilla Duty Free's store logo on the store in Seoul's Jung-gu District / Courtesy of Shilla Duty Free

Hotel Shilla’s plan to build a new hotel in Seoul, designed in the traditional Korean "hanok" style, is on hold as the company struggles with declining sales, primarily in its duty free retail division.

Although the company launched its ambitious 300 billion won ($204 million) project in 2011, construction has yet to progress due to multiple setbacks.

The hotel’s construction remains indefinitely on hold, according to a senior official from the hotel and resort division of Samsung Group. He said that only land preparation has been completed.

"Only roads have been cleared at the site so far. The project's main construction phase has not yet begun," the official said. "We will issue a public disclosure once we decide on any further action regarding the project."

The official said the company is currently in a financially bad situation, and the project will resume after the problem is resolved.

"About 80 percent of our sales come from duty free stores, with the rest from our hotel business," the official added. "The decline in duty free sales has significantly impacted our overall revenue. Until the company’s performance recovers, we cannot even begin to consider the next steps for the project."

Hotel Shilla last year recorded sales of over 3.9 trillion won, up 10 percent from the previous year. However, it saw an operating deficit of 5.2 billion won, a sharp drop from an operating profit of 91.2 billion won the year before.

Shilla Duty Free is not the only player in Korea’s duty free industry experiencing declining sales. The country’s so-called big four brands all suffered losses last year. Lotte Duty Free reported an operating deficit of 143 billion won, turning from profit to loss. Shinsegae Duty Free saw an operating deficit of 35.9 billion won, while Hyundai Duty Free, which fared best among the four, still failed to make money.

The popularity of road shops for fashion, beauty, food and other souvenir-worthy goods among tourists in Korea contributed to the declining sales of the country's duty free stores. The reduced volume of Chinese visitors to Korea was another major factor.

Hotel Shilla’s journey to build the hanok hotel has been challenging from the start, with the Seoul Metropolitan Government rejecting the proposal twice. It was finally approved in 2016.

Soon after the project’s groundwork began in 2020, remains of ancient building structures were discovered at the site in Seoul’s Jung District, halting the project. Construction made little progress afterward, as the country was struck by the COVID-19 pandemic the same year, which significantly reduced foreign visitors and impacted the company’s sales.