Moon divides with call for duty-free on arrival

The shutters of potential arrival-gate duty-free stores remain closed next to the baggage claim at Incheon International Airport Terminal 1. The store spaces have remained closed since the airport opened in 2001. [YONHAP]

President Moon Jae-in’s suggestion on Monday that Korea build duty-free stores at airport arrival terminals is generating mixed reactions from the industry.

Large companies aren’t thrilled, but it could provide a potential opportunity for smaller brands. Although details have yet to be decided, Moon requested officials look for ways to benefit smaller operators, so it’s unlikely that the new contracts will go to the large duty-free companies that are part of the Lotte, Shilla and Shinsegae conglomerates.

On Monday, Moon requested that government officials review the possibility of opening duty-free shops in arrival terminals. Korea only allows airport duty-free stores near departure gates based on a tax exemption that is granted if the purchased product will be used overseas.

“[Korean] overseas travelers will soon reach 30 million people [a year], and yet we still don’t have duty free stores at arrival terminals,” Moon said during the meeting. “[This] causes inconvenience for them as they have to carry duty-free products bought at the airport or stores inside the city throughout their whole trip.”

He also remarked that the number of Koreans shopping overseas was increasing at a much faster rate than inside the country’s borders. Moon said that adding duty-free shops at arrival gates can increase domestic consumption and boost spending from foreigners as well.

Duty-free stores at arrival terminals are not a new concept, as they exist at 135 airports in 71 countries. Lawmakers have introduced bills that would permit them to open six times since 2003, but none passed the National Assembly.

Last month, lawmaker Lee Tae-kyu of the Bareunmirae Party proposed a seventh bill that would to permit duty-free stores to open at arrival terminals. The Incheon International Airport Corporation said there are already locations for potential duty-free stores near the arrival gates at Terminal 1 and 2 that are currently empty.

For smaller companies, this may be an opportunity to expand their business at Incheon International Airport, which currently has four non-conglomerate duty-free operators. As Moon said, consumers may want to benefit from lighter traveling thanks to the duty-free stores at arrival terminals. A survey from the Incheon International Airport Corporation released last year showed that 84 percent of airport visitors wanted duty-free stores to open at arrival terminals.

“If the new stores are exclusively given to smaller operators, this will expand the duty-free market,” said a source at a small duty-free operator. “But there are a lot of steps to go through, including approval from the National Assembly and agreements among relevant government offices. It won’t be easy to finish the task this year.”

The source agreed that the president’s highlighting of the issue and mentions of its benefits to smaller companies are positive signs.

It remains to be seen if the sales of the large duty-free shops that dominate departure gates will be affected by stores at the other end. The space available for duty-free shopping at the arrival terminals is much smaller.

But larger operators are not welcoming the possible change. The purchase limit for duty-free products is set at $600 for Koreans, so if a Korean returns home with items worth more than $600, they have to pay tax on them. Larger brands claim that raising this bar - which is lower than that of Japan, China and the United States - would also boost duty-free sales.

Large companies also question whether building new duty-free shops at arrival terminals would enhance consumer convenience or boost demand.

“If small operators are allowed in, it’s unclear how good their performance will be in attracting popular brands or preparing a large variety of products,” said a source at one of the conglomerate-owned duty-free brands. It added that a more urgent issue at Incheon airport was the crowded pick-up station for online duty-free purchases, which led to long lines this summer. “The airport corporation is neglecting to solve this because, [unlike new spaces for rent], it’s not related to revenue.”

Airlines also are not happy about the potential for new competition at the arrival terminals. Korean Air brought in about 300 billion won ($265 million) in sales from its in-flight duty-free business last year and Asiana Airlines recorded sales of 96.4 billion won, according to the companies.

“[Moon’s comment] puts pressure on airlines,” said an industry source. “It’s likely to push down sales at in-flight duty-free stores, and personally I also think there’s the possibility that arrival terminals will get more congested.”

BY SONG KYOUNG-SON [song.kyoungson@joongang.co.kr]