Urban duty-free bidding heats up

Business conglomerates have reignited their competition to win a license to run three urban duty-free stores in Seoul and another in Busan.

Having witnessed the jaw-dropping success of duty-free stores thanks to the recent Chinese tourists’ influx, business tycoons are vowing to win the license allowing the semi-exclusive operation for the next five years. The application process wrapped up on Sept. 25, and the result is due to be announced in November.

“Because of the expensive rent inside airports’ duty-free zones, urban stores are regarded more profitable. For the retailers, winning the urban store license is the key to business feasibility,” a business analyst said.

According to the Korea Customs Service, Lotte, SK, Doosan and Shinsegae have applied for the lucrative license.

They are vying to operate inside the Sheraton Grande Walkerhill hotel run by SK Networks, Lotte Department Store in Sogong-dong of central Seoul, and Lotte Department Store in Jamsil, southern Seoul, whose operational rights will expire by the end of the year.

The KCS said the assessment will focus on not only the candidates’ business soundness and feasibility but also job creation as well as social contribution.

“Because the products sold in duty-free stores are luxury goods, there will not be much difference in the operations. The race will go down to what services and contribution we can bring to the government and society,” a Shinsegae insider was quoted as saying.

Among the candidates, Lotte has been desperate to retain its two existing outlets.

The country’s No.1 duty-free operator has been struggling to quell rumors that it may lose the license because of the July family feud over management control, exposing its opaque governance structure that led to public antipathy toward the business conglomerate.

In the final attempt to grasp the license, Lotte announced that one of the stores will be located on the top three floors of the 123-story Lotte World Tower, a landmark of Lotte Group. The Sogong-dong branch sealed a pact with Seoul Metropolitan Government to revitalize the tourism industry, while the company chairman Shin Dong-bin declared the business expansion to Bangkok and Japan on top of its existing Jakarta and Guam outlets.

“We are positive that the collaboration will bring us closer to attracting 13 million customers to our stores by 2020,” Lotte DFS CEO Lee Hong-kyun said.

The heavy industries-oriented Doosan Group -- which also owns Doota shopping mall in Dongdaemun and high-end Vogue, W, GQ, Allure and many other licensed fashion magazines under its belt -- assured the stakeholders about its ability to run a luxury retail business. Shinsegae, which jumped into the duty-free business in 2013 by acquiring the Busan outlet, is also gearing up to sell more products from small- and medium-sized producers, which could bring extra credits in the assessment process.

Duty-free businesses are regarded as one of the most lucrative sectors in retail.

Lotte Duty Free posted 4.2 trillion won in sales last year, while the duty-free unit of Hotel Shilla, operator of Shilla DFS, marked 2.6 trillion won during the same period.

Such figures are believed to have been affected by the growing number of Chinese tourists. According to the South Korean Embassy in China, the number of Chinese nationals who visited the country stood at 6,335,000 in 2014, up 46 percent from a year before.

The outlook for this year is also positive. According to the Ministry of Strategy and Finance, duty-free stores have seen 10 percent higher sales in August and September, compared to the same period last year.

By Bae Ji-sook(baejisook@heraldcorp.com)