Four more duty-free operators to be licensed

Lotte and SK welcomed the government’s decision Friday to add six more duty-free shops, including four in Seoul, as Chinese tourists pour into the country.

The Ministry of Strategy and Finance, the Korea Customs Service and the Ministry of Culture, Sports and Tourism held a joint press briefing to say they will name three conglomerates and one smaller company as duty-free operators by the end of the year. It will start accepting applications between May and June.

Aside from Seoul, one duty-free store will be opened in Busan to capture in marine-related tourism, including cruise tours, and another will open in Gangwon, which will host the Winter Olympics in 2018.

“We expect the additional inner-city duty-free businesses will help generate new investments worth 1 trillion won [$880 million] and contribute to hiring 5,000 people,” said Lee Myung-koo, an official at the customs agency. “The government decided to add additional duty-free operators in order to establish a shopping infrastructure for the rising number of tourists drawn by Hallyu [the Korean Wave of cultural content] and to support the government’s strategy in vitalizing the tourism industry and [private sector] investment in hiring.”

Between 2012 and 2014, the number of tourists visiting Seoul grew at an average of 13 percent every year, according to the government. In 2014, 14 million tourists came to Seoul.

However, the number retreated last year by nearly 7 percent to 13 million after Middle East respiratory syndrome (MERS) swept the country between May and June before stabilizing in July. In the first three months of this year, the number of tourists rebounded and grew 12 percent year on year to 3.6 million.

Thanks to the tourists, duty-free businesses have been thriving. In the past five years, the industry has enjoyed average yearly revenue increases of 20 percent. The government is expecting duty-free revenue to grow 29 percent this year.

Last year, revenue from duty-free stores amounted to 9.2 trillion won, up 10.7 percent from 2014, even as tourist numbers slumped during the MERS outbreak. As of March, revenue had already hit 1.57 trillion won for the year.

The customs agency said in 2017, it expects nearly seven million duty-free customers, requiring the licensing of five new stores.

There are currently 21 inner-city duty-free stores; nine are located in Seoul. With Friday’s decision, the number of inner-city duty-free stores in Seoul will increase to 13, while there will be two inner-city duty-free stores in Busan, and Gangwon will get its first.

Although the government has not yet selected the three operators, Lotte and SK are confident that they will be selected. Hyundai Department Store is expected to be the third conglomerate selected.

Both Lotte and SK failed to extend their duty-free operations when the government made the last selection in November. Lotte is the country’s biggest duty-free operator, with revenue amounting to 4.7 trillion won, nearly half of the entire duty-free business in Korea last year. Lotte’s duty-free business in the Lotte World Tower in Jamsil, southern Seoul, is scheduled to close in June, while SK’s Walkerhill duty-free shop is to shut down in May.

After the government stripped Lotte and SK of their duty-free operations, it was criticized for the layoffs that would ensue.

Lotte welcomed Friday’s announcement, saying the policy will strengthen the country’s tourism industry competitiveness and contribute to revitalizing the nation’s economy.

“It was the right decision considering the growing popularity of Hallyu within China thanks to [the drama] ‘Descendents of the Sun,’ the growing number of foreign tourists and the fierce competition in the global duty-free business,” Lotte said in a statement.

SK Networks released a similarstatement saying the decision will contribute to the country’s tourism industry as well as job opportunities.

“Since it opened as Asia’s biggest hotel in 1963, the Walkerhill has been part of Korea’s tourism industry history for 54 years and has developed the best service capacity,” SK said in a statement. “If we can continue the Walkerhill duty-free business, we will play a significant role in Korea’s tourism industry development.”

Rival duty-free businesses that won operation rights last year weren’t too happy that the biggest duty-free operator might be returning to the market.

“The government decision is disappointing,” an official at one of the newly appointed duty-free operators said. “It hasn’t been a year since some of us newly named operators have been selected, and such a decision will only increase competition in the market.

“With tourists not showing exceptional growth as in the past, we think there are too many players.”

Another new operator expressed similar concerns, adding that it will do everything it can to boosts its competitiveness.

BY LEE HO-JEONG, PARK EUN-JEE [lee.hojeong@joongang.co.kr]