Gov’t to grant licenses for 6 new duty-free stores in cities

Six new duty-free shops are set to open in major cities including Seoul, Incheon and Gwangju, raising concerns about the already cut-throat competition in the industry.

The Ministry of Economy and Finance on Tuesday announced it will issue five licenses to large retailers to operate duty-free shops - three in Seoul, one in Incheon and one in Gwangju.

The sixth license will be given to a smaller operator to open a duty-free store at an undisclosed location somewhere in South Chungcheong - the first in the province. The government may also allow smaller duty-free operators to bid for the three Seoul licenses.

Currently, there are 14 duty-free shops in cities - meaning shops in downtown areas rather than in airports - nationwide operated by large retailers like Lotte and Shilla and 12 run by small and medium-sized companies.

The companies that will be granted the new licenses will be confirmed in November once the bidding process, set to start later this month, is complete and the decisions have been evaluated by the Korea Customs Service.

Industry insiders had expected the government to raise the number of duty-free shops after it relaxed customs laws in February to stimulate the local tourism industry. Based on the revision, licenses for new city-based duty-free shops can be issued to large retailers if duty-free sales in a metropolitan city jump up at least 200 billion won ($168.2 million) in a year, or if the number of foreign tourists increases by more than 200,000.

Industry insiders are concerned about the decision, fearing it could further heat up the competition and distort the market that is almost dominated by Chinese customers.

Chinese customers have become the main source of income for duty-free operators in Korea, accounting for up to 70 percent of sales, according to a source from the industry. Such excessive reliance on a certain group of customers could make the industry highly vulnerable to external factors, as seen by the effect of China’s retaliation against Korean firms following the deployment of the U.S.-led Terminal High Altitude Area Defense (Thaad) antimissile system in 2017.

Hanwha Galleria Timeworld’s decision late last month to close the duty-free shop it runs in the iconic 63 Square skyscraper in western Seoul proves the difficulty of running a duty-free store in a city. The conglomerate incurred more than 100 billion won in losses after three years in the business.

BY JIN MIN-JI [jin.minji@joongang.co.kr]