HDC Shilla beats out newcomers in duty-free

Shilla I’Park Duty Free, operated by HDC Shilla, surpassed its monthly break-even point in January for the first time as a newcomer to the duty-free business. [HDC SHILLA]

In Korea’s cutthroat duty-free industry, newcomer HDC Shilla came out on top in January, breaking even 10 months after it opened its doors.

The joint venture between Hotel Shilla and Hyundai Development generated 125 billion won ($109 million) in operating profit from 53.2 billion won in sales last month, the company said Thursday, adding that it was the first duty-free store that opened within the past year to break even.

In total, HDC Shilla generated 20.9 billion won in operating profit last year from 397.1 billion won in revenue.

The store, located near Yongsan Station, a major train stop in central Seoul, is banking on diverse luxury brands under the fashion giant LVMH to carry its performance through the rest of this year. Louis Vuitton will be coming to the duty-free shop in the first half of the year, followed by Christian Dior, Fendi, Bulgari and more.

An expansion of HDC Hyundai I’Park Mall, where the duty-free store takes up the third to seventh floors, is expected to give a boost to nearby tourism and attract more visitors.

In November, the mall operator said it would invest 100 billion won in expanding the shopping complex by as much as 64,000 square meters (690,000 square feet). It is working with CJ CGV, Korea’s top theater chain, to turn one corner of the mall into a multiplex themed around Korean celebrities, which the company is calling “Hallyu Town,” referring to the word for Korean pop culture.

“We expect the duty-free shop to welcome as many as one million visitors per day once the Hallyu Town is completed,” an HDC Shilla spokesman said.

With a prolonged economic slump and dramatically decreasing number of Chinese tourists coming into Korea, newcomers in the duty-free business have been experiencing severe competition.

“No matter how many luxury brands or interesting brands you exclusively bring in to your duty-free store, brand awareness ultimately plays a very big role in attracting both domestic and foreign tourists,” said one source working at another new duty-free shop. “In that sense, new duty free operators don’t have a competitive edge over longstanding behemoths like Lotte or Shilla, and the number of competitors has surged so much in the past year.”

HDC Shilla and Shinsegae, which is already well known for its retail channel, were the only newcomers that surpassed 300 billion won in revenue last year.

The other new stores made far less. Third-place Galleria Duty Free 63 generated 223.7 billion won, followed by Doota Duty Free with 111.1 billion and SM Duty Free with 56.3 billion.

For its success, HDC Shilla credits Hotel Shilla’s experience from 30 years of running its own duty-free shop and construction from Hyundai Development.

Its convenient location near Yongsan Station, with connections to high-speed intercity KTX trains and two subway lines, also helped attract more visitors, a company spokesman said. “HDC Shilla is going to continue its successful streak of generating operating profit in the coming months.”

The spokesman said the company hopes to achieve 750 billion won in sales this year.

BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]