Competition heats up for duty free licenses

As the deadline for submissions to renew duty free shop licenses in Seoul and Busan arrived Friday, competing operators are pulling out all the stops to win rights to the lucrative business.

Of the four duty free shops up for grabs, Lotte Duty Free runs two in Sogong-dong, central Seoul, and Jamsil, southern Seoul while SK Networks operates one in Gwangjin District, eastern Seoul. Shinsegae Duty Free has its store in the Paradise Hotel in Busan.

The three existing operators submitted applications to hold onto the licenses they currently hold but Doosan Group and Shinsegae Duty Free are trying to take away the rights in Seoul.

Both Shinsegae and Doosan turned in business plans for three locations in Seoul, making the race a three-way competition.

Doosan Group, a machinery and construction conglomerate, is getting particular attention because it has never been in duty free before.

The conglomerate is promoting its Doosan Tower mall in Dongdaemun as its duty free venue, saying that the district is a prime shopping destination for tourists.

The Dongdaemun area is crowded with tourists looking to buy fashion items and visit the space-age Dongdaemun Design Plaza, but the district doesn’t have a major duty free shop.

Lotte Duty Free touted Dongdaemun as the venue for new duty free shops earlier this year when it competed to earn a license to open new duty free stores in a separate race. But it failed to get the go-ahead.

Shinsegae also sees the duty free industry as a fresh source of revenue amid stagnant sales in department stores and big supermarket chains.

Large industry players have been drawn to the industry in recent years because of its double-digit sales growth thanks to the increasing number of tourists visiting Korea, especially from China.

While sales growth at major department stores - Lotte, Hyundai and Shinsegae - are stuck in the single digits, duty-free shops enjoy an average of 15 percent growth, according to Daishin Securities.

To obtain a competitive edge, Shinsegae Group is focused on raising funds to invest in duty free shops.

Shinsegae and E-Mart sold a chunk of their shares in Samsung Life Insurance in May. Analysts say Shinsegae will likely use its proceeds from the sale - estimated at around 330 billion won ($277 million) - for investments in the duty-free business and new department store openings and renovations.

With different players trying to horn in on the business, Lotte has been desperate to retain its share.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]