Fashion
Park Geun-Hye’s South Korean government has commissioned a formal review of the domestic duty free industry, its impact on tourism and what it perceives as the dominance of Lotte Duty Free and Shilla Duty Free in the sector.
A private consulting firm has been commissioned to undertake the review, which is expected to forward its findings to government before releasing the results into the public domain.
We understand that Korea Customs Service officials have informally told duty free industry executives that new Seoul downtown duty free shop licenses could be issued in 2016 – and possibly other key locations – as part of government efforts to reduce Lotte’s and Shilla’s present duty free industry dominance.
“The government is researching the duty free environment and will announce the results including whether new downtown licenses will be issued and where, and the number of new licenses,” commented a reliable duty free industry source in Seoul.
“The government has asked a private consulting company to research the duty free market here to boost tourism and reduce the present duty free market duopoly. The government is looking at a different solution to taking away existing licenses; instead they are planning to have more licenses. We hope there will be a positive result from the government’s announcement.”
Although no decision has been made so far, Korea Customs Service officials are understood to have told duty free industry executives that new downtown licenses may be issued this year. Seoul, the South Korean capital, and Busan are the most likely locations for new downtown shop licenses, along with Jeju Island.
‘RUMOURS’ OF MORE LICENSES…
“KCS is leaking rumours that there will be new duty free licenses around March 2016. There is still a debate in our National Assembly about diluting existing duty free retail monopolies by giving new licenses,” said the source.
“KCS is thinking to issue more duty free licenses for Seoul and Busan. Tourism in Busan is growing, but not like Seoul. Lotte’s grip already is weaker as they have lost their Lotte World Tower license; also, Shinsegae Duty Free is coming into central Seoul with their new Namdaemun super store, which will take a significant part of Lotte’s Sogong shop’s sales.”
News of the government’s duty free industry review comes as speculation continues to grow over the future use of Seoul’s Lotte World Tower duty free store and the Walkerhill downtown duty free shop, after both retailers recently lost licenses to successful rival bids from Shinsegae Duty Free and Doosan Duty Free.
Under KCS regulations, losing duty free license holders may continue to operate their shops for a grace period of six months after license expirations to allow them to sell off stock, find new employment for staff and wind up their businesses.
Both the Lotte World Tower and Walkerhill downtown stores are continuing to trade while their owners decide future arrangements for their outlets.
PRESIDENT PARK GEUN-HYE SAID TO BE ‘CONCERNED’
South Korean President Park Geun-Hye (top right) has only recently voiced concern about the large financial losses that both Lotte and Walkerhill face under KCS’s new non-renewable license arrangements, after investing in multi-million dollar new duty free facilities, only to lose their licenses soon afterwards.
“There is a rumour that Lotte will try to pass its Lotte COEX duty free shop license in Seoul to Lotte World Tower duty free shop,” the source said. In the Lotte World Tower shopping complex there are already duty paid Louis Vuitton, Chanel and other luxury brand boutiques.
“Without its Lotte World Tower duty free license there is no reason for Lotte to keep its former duty free boutiques there as well and have double stores in one location. Lotte will have to destroy all its investment in these duty free boutiques. The government does not want to see this happen, so it is thinking of different options.”
Other possibilities apart from Lotte being permitted to transfer its COEX downtown duty free store license are that it could win a new license if KCS issues a new series in Seoul this year. Alternatively, another company winning a new duty free license might be permitted to operate the Lotte World Tower outlet, though it is unlikely that Lotte would agree to this.
WALKERHILL RECONFIRMS IT IS LEAVING THE BUSINESS
While Lotte continues to search for a solution, the SK Group parent of Walkerhill Duty Free has reconfirmed that it is to leave the duty free industry altogether and it will not seek a new duty free license in future.
The Walkerhill duty free store actually represents only a very small share of the SK Group’s total revenue compared with its major business activities, that include telecommunications, transportation, oil refining and other energy-related interests.
SK recently invested more than US$30m in upgrading and expanding its Walkerhill duty free store which forms part of the Walkerhill hotel and entertainment complex in eastern Seoul. The retailer’s options now include converting the duty free store back to hotel use, or leasing the shop to another retailer.
Paradise Casino, which operates the Walkerhill complex casino, is understood to be disappointed at the loss of the duty free license as many high spending Chinese visitors to the duty free store visited the casino after shopping.
In fact, the Walkerhill duty free shop and casino rely upon each other to attract customers, as many visitors to Paradise Casino also visit the ajoining duty free shop, which has built a strong reputation for its wide range of high-priced watches, along with other luxury goods.
