As losses mount, SM Duty Free pulls out of Seoul

Reeling from a sharply reduced customer base and a lack of government support measures, SM Duty Free will surrender its business license to operate its store inside Seoul, the company’s board decided Wednesday.

Like other duty-free operators, the company is suffering from a sharp sales decline and is already burdened with hefty rents for its airport stores. Run by Korea’s largest travel agency Hanatour, SM was the first small duty-free operator in the country to win a permit to run duty-free stores in the city back in 2015.

The license ensured five years of operations inside Seoul, with the ability to extend it by a further five years.

“There are barely any passengers flying in and out due to the new coronavirus,” said SM Duty Free CEO Kim Tae-hoon. “With the government’s limited support policies, our accumulated losses and the expected difficulties after the virus’s peak, we concluded that improving profitability on the long term won’t be possible.”

Beyond the steep drop in sales, the company’s failure to secure government subsidies offered in the wake of the recent economic downturn was also cited as a critical blow.

Categorized as a medium-sized business, SM was unable to secure subsidies announced by the Korean government on Feb. 27 to help local merchants and small companies. The subsidies include cutting rent at more than 100 public offices and buildings, including Incheon International Airport. The duty-free company only qualified for postponing rent payments for three months.

SM is now left only with its airport stores. The company currently runs duty-free stores in Incheon’s terminals 1 and 2. February sales in the Terminal 1 store plummeted 52.9 percent on year to 2.7 billion won ($2.2 million), while sales in its Terminal 2 store dropped 54.9 percent on year to 2 billion won.

The airport announced Thursday it will enter emergency management, becoming the first state-owned company to do so. Its top executives will return a portion of their wages for the next four months.

The number of passengers in the airport plummeted by 90 percent in mid-March. If the trend continues, some experts predict the airport could see a 70 percent drop in customers for the year, meaning it won’t be able to reach its break-even point.

BY KWAK JAE-MIN [song.kyoungson@joongang.co.kr]