Seoul duty-free market set for major shift

The landscape of Seoul’s lucrative duty-free market, dominated by Lotte and Shilla as of now, is set for a major change following the bid for the expiring business licenses of three duty-free stores in the capital city.

According to market data from the Korea Duty Free Association, sales at the nation’s duty free shops reached 8.3 trillion won ($8 billion) last year, with urban tax-free outlets taking 70 percent of the total revenue.
 

Retail giant Shinsegae and Doosan Group, an industrial conglomerate, were new entrants to the market, securing the rights to open their first duty-free stores in Seoul as they edged out sites held by Lotte and SK Networks.

Shinsegae plans to open a new duty-free store in Myeong-dong, the shopping district most visited by foreign tourists, competing with market-dominant Lotte’s main tax-free outlet nearby.

Doosan, eyeing fresh growth by expanding its portfolio into the retail business, will establish its first duty-free store in Dongdaemun, a popular tourist destination and shopping district, offering designer clothes at low prices.

The industrial conglomerate is planning to open a duty-free outlet spanning 17,000 square meters in Doosan Tower, one of the neighborhood’s landmark shopping malls located opposite the Dongdaemun Design Plaza.

“We vow to work with local shop owners in Dongdaemun to develop the area as the capital’s representative tourist destination,” said Doosan president Dong Hyun-soo in a statement.

Lotte, the nation’s No. 1 duty-free operator, lost the operating license to its duty-free store in Lotte World Tower located in Gangnam.

Though the firm was able to retain the license for its main duty-free shop in Myeong-dong, the loss of its second-largest outlet is set to take a significant toll on the leading retailer’s profits.

Though posting weaker sales than the Myeong-dong outlet, the duty-free store at Lotte World Tower, the third-largest in the country, racked up roughly 500 billion won ($429 million) in profits last year.

Moreover, Lotte had reportedly invested around 400 billion won into renovating and expanding the store’s facilities and relocating it into the newly-built Lotte World Mall, which opened last year.

The loss of one of its major duty-free stores combined with the emergence of Shinsegae and Doosan as new competitors is expected to deal a blow to Lotte’s ambitious plans to become the world’s No. 1 duty-free operator by 2020.

“Lotte humbly accepts the results of the duty-free bid,” Lotte said in a statement. “We will continue to address our shortcomings and continue to grow to become the world’s leading duty-free operator.”

The firm further addressed concerns that the curtailed duty-free operations may put a halt to its plans to list Hotel Lotte, which makes more than 85 percent of its total profits from Lotte’s duty-free business.

“We will continue our commitment to list Hotel Lotte and become a more transparent company,” Lotte said.

Meanwhile, SK Networks, a subsidiary of SK Group, will close its duty-free store in the Sheraton Grand Walkerhill Hotel after 23 years of operation, as its license expires Monday.

SK is the first duty-free operator to lose its operating license in an open competition to be held every five years by the customs authorities under a new law that went into effect in 2013.

By Sohn Ji-young (jys@heraldcorp.com)