In news that rocked the Korean travel-retail and duty-free world last November, Lotte Duty Free and Walkerhill Duty Free lost major downtown licenses to Shinsegae Duty Free and Doosan Group respectively, following a ground-breaking decision by the Korea Customs Service (KCS). But could they be granted a reprieve following a public hearing this week which discussed ways of easing regulations?
The KCS’ decision to float key licenses—Lotte flagship and Lotte Tower stores, Walkerhill Duty Free’s downtown Seoul shop and Shinsegae’s Duty Free Busan operation—was in line with new regulations introduced in 2013. This meant contracts would expire after five years instead of the previous 10 and competition for licences would be encouraged at national level.
The new regulations and KCS’ decision to rob Lotte of its invaluable World Tower Licence and SK Networks (Walkerhill Duty Free) of its flagship downtown duty-free operation it had operated for more than 25 years — DFNIonline understands both stores continue to trade until their futures are resolved once and for all— prompted strong criticism in Korea. It was widely believed such developments would hinder long-term investment and perhaps undermine global competitiveness of the country’s duty-free industry.
During Wednesday’s hearing, The Korea Herald revealed officials proposed the issue of more licenses for duty-free shops in Seoul and return of 10-year expiration terms – previous terms were for five years. According to the publication, under the new proposals, the government could grant more duty-free licensees if the portion of foreigners and money spent at local duty-free shops exceeded 50% over the previous year. It could also do so if foreign visitors increased more than 300,000 in each municipality.
While the Korean government believes the proposed new measures would make the local duty-free market more attractive compared to competition elsewhere and promote the tourist industry, the new operators do not share the same view. They believe they would only succeed in instigating “excessive rivalry” in a currently saturated market and re-invigorate Lotte and Shilla, which would not do them any favours. DFNIonline understands and appreciates both perspectives but the reality is that changes must be made for the sake of the industry.
Quoting data released by the Seoul City government, indicating visitor numbers in the capital dropped 10.6 million last year from 11.4 million the year before, the Korean Herald report said: “The number of foreigners entering Korea via Incheon International airport and Gimpo airport also tumbled 5.9% and 11% respectively.
”The Korea Herald suggests the likes of Doosan Group, the heavy industry conglomerate, which confirmed to DFNIonline it is due to open its first store at the Doosan Tower in Dongdaemun in May and Shinsegae Duty Free, which already opened its new downtown store in March, believe the government has been “misled” by exaggerated tourism numbers.
It also quoted an industry insider who commented: “New duty-free operators are set to invest K1.07trn ($896m) and hire 14,200 workers. But if we are going to have more operators even before setting the businesses, this would kill the entire duty-free market.”
Lotte and Walkerhill Duty Free, however, refuted these claims, indicating the winners had previously urged the government to introduce more operators in the market, only to change their position once securing the licenses.
Speaking to DFNIonline in December 2015 Lotte Duty Free marketing division managing director Bo Joon Kim said: “The reason why the duty-free market in Korea can be the world’s best is the constant investment and tremendous effort to attract foreign tourists to Korea.
“However, if the operator changes every five years, the instability of the investment will not only hinder long-term investment, but create increased competition, which will eventually curtail service.”
Kim also said a repeated change of operators would harm the global competitiveness of tourism in Korea and the duty-free market – Lotte Duty Free directly attracted 1.55 million foreign tourists to Korea in 2014 equating to 10.9% of the total number, he said.
If local media reports are to be believed, the Finance Ministry will finalise the plan on duty-free operations this month. Do Lotte and Walkerhill really believe they will be granted new duty-free licences and is there a realistic chance these proposals will be implemented? Time will tell, but one thing is certain. Something has to be done.