Lotte Duty Free, Hyundai Duty Free and Shinsegae DF have snatched licenses for new duty free shops in Seoul, showing that retail specialists will have the upper hand over non-retail firms struggling in the market.
However, the big three firms still have to brace for harsh competition in the already saturated market, as well as lingering questions about the fairness of the selection process due to possible ties to a corruption scandal engulfing President Park Geun-hye and her confidant Choi Soon-sil.
The Korea Customs Service (KCS), Saturday, named the three firms as operators for three Seoul-based duty free outlets. Also, it said a fourth license for the city, reserved for small and medium-sized firms (SMEs), was taken by Top City Corp. Busan Duty Free and Alpensia won licenses for outlets in Busan and Gangwon Province, respectively.
The three conglomerates are retail giants that run department stores in the country. Market watchers say their experience and expertise in attracting luxury brands as well as managing and running their stores worked favorably for them in the KCS evaluation.
All three conglomerate-run shops will be based in southern Seoul. Hyundai, which earned the highest score in the KCS evaluation, will open an outlet near COEX in Samseong-dong. Lotte will reopen an outlet in its landmark Lotte World Tower in Jamsil. Shinsegae will have one in Central City in Seocho-gu.
So far, most of the large duty free stores have been located north of the Han River. Top-seller Lotte Duty Free’s main store is located in Sogong-dong, while Shilla Duty Free is in Jangchung-dong and Dongwha Duty Free is in Sajik-dong. The combined earnings of the three outlets last year reached 3.85 trillion won.
Market observers expect the fresh selection will create an opportunity to draw more tourists to southern Seoul and meet the growing demand for duty free shops in the region. According to the Korea Tourism Organization, the number of foreign tourists in those regions grew an average 19 percent annually from 2012 to 2015.
With the new selections, however, more competitors are added to the already saturated duty free market in Seoul. Currently, nine duty free outlets are in operation in the city and the four companies will open their new stores next year.
Data shows that the market is displaying signs of a widening gap between firms. Five duty free outlets that began operation after the government granted licenses last year have posted billions of won in operating losses.
In the first three quarters this year, a Shinsegae shop in Myeongdong posted an operating loss of 37.2 billion won. Galleria Duty Free 63 on Yeouido and HDC Shilla Duty Free in Yongsan each recorded 30.5 billion won and 16.7 billion won in operating loss.
SM Duty Free in Jongno-gu, which opened as an SME shop, also suffered a 20.6 billion won operating loss in the same period. Doota Duty Free in Dongdaemun did not disclose its data, but reportedly it posted an operating loss of 27 billion won in five months after opening in May.
Another factor casting concern is the ongoing controversy that the selection was allegedly affected by Choi Soon-sil. Lotte and SK, which were among the candidates for the fresh selection, donated money to two nonprofit foundations controlled by Choi and the prosecution is suspecting the money worked in favor of the two companies.
With Lotte winning one of the licenses, the controversy is likely to grow.
The main opposition Democratic Party of Korea (DPK) said Sunday it is “suspicious of the KCS decision to press on with the selection process even though a special inspection over the scandal is ongoing regarding the matter.”
The KCS said last December there would be no more selection for duty free operators but suddenly decided to offer more licenses in April.
“There have been suspicions that SK Group head and President Park met privately over the duty free shops,” said DPK spokeswoman Park Kyung-mee.