The revival of Lotte and SK Walker Hill becomes more probable…Will it make a full-scale move after the duty-free shop system improvement public hearing scheduled for March 16?
Contrary to the wishes of new downtown duty-free shops in Seoul, the competent authorities, i.e. the Ministry of Finance and Strategy and Korea Customs Service, are known to be considering additional licenses for downtown duty-free shops in Seoul, and the opposition from newcomers is growing stronger. Last July 3 new duty-free shops were added in downtown Seoul, and last November the two new companies, which obtained the license for the existing Lotte World Tower store and SK Walker Hill store, have not even opened their shops yet. The new duty-free shops, which began operations, are not doing well initially contrary to expectations, and if additional licenses are awarded when the increased number of duty-free shops greatly reduced the brand bargaining power, it will adversely affect the entire industry.
For this reason, the eyes of the industry are on what the government will announce in the public hearing scheduled for March 16. The Korea Institute for International Economic Policy said, “Together with the Ministry of Finance and Strategy, we will deal with matters regarding extension of the duty-free shop license period, adjustment of license fees and alleviation of requirements for new downtown duty-free shop licenses,” but the industry predicts that the additional licenses for new duty-free shops in Seoul, which have become a controversy recently, will become an issue in the public hearing.
“The public hearing itself is far from the new licenses for downtown Seoul, which are currently controversial. The contents of the public hearing are focused on improvement of the law to be amended later,” said a Korea Customs Service insider about this. “In particular, with regard to new licenses, matters related to alleviation of requirements prescribed in the notification are highly likely to be announced, and the controversy over the new licenses for downtown duty-free shops in Seoul and the public hearing are two different things.”
As the public hearing will be held just before the government’s plan to improve the system at the end of March, however, it seems that those companies which lost their licenses and the new companies which must defend their licenses will be opposed to each other. Opinions voiced during the public hearing will have a direct and indirect influence on whether new licenses will be added. New duty-free shops believe that the current system, which allows the Commissioner of Korea Customs Service can arbitrarily issue additional licenses if the requirements for new licenses are satisfied, will be disadvantageous to them. If new licenses are issued to expand the domestic duty-free shop market and improve global competitiveness, there is concern that the two companies with the duty-free shop business, i.e. Lotte and SK Walker Hill, may obtain duty-free shop licenses again.
On the morning of March 14, the CEOs of HDC Shilla, Hanwha Galleria, Shinsegae, Doosan and SM held an emergency meeting at Seoul Korea Federation of Banks for this reason. “The new duty-free shops, which received licenses in the second half of last year and opened their shops just now, are not selling well, and they are having difficulties due to the difficulty of attracting brands and manpower shortage,” they said. “If the discussion of new licenses continues at a time when the market is in confusion, the entire industry will go under.” They strongly criticized the attitude of the government that is shaking the industry.
Source=the Ministry of Culture, Sports and Tourism’s annual report on trends in tourism
Actually, according to Paragraph 1 of Article 7 of the Notification about Operations of Duty-Free Shops, the Commissioner of Korea Customs Service can arbitrarily issue new licenses if they meet the requirement, i.e. ‘the proportion of sales from foreigners must be 50% or more, and the number of increased foreign tourists in the local government must be 300,000 or more.’ According to the Ministry of Culture, Sports and Tourism’s 2014 annual report on trends in tourism published in February 2015, the number of foreign tourists already increased by 1.56 million in Seoul over 2013, and the sales from foreigners are 4.5 times more than those of local residents. Looking only at the requirements, new licenses for downtown Seoul may well be issued. According to the aforementioned standards, there will be no problem even if the notice about new licenses is posted next week.
Source=Korea Duty Free Association
“The government announced the improvement plan, which was supposed to be announced in June, earlier than scheduled, and held the public hearing in a hurry in order to find a reason for making the grounds that satisfy the requirements,” said a new duty-free shop insider. “Anyone will see that the government is considerate of the two companies whose licenses will soon expire rather than for the development of the industry. And I hope that the government will make serious judgment about whether changing its mind in less than a year without giving the new companies an opportunity to grow will enhance the competitiveness of the duty-free industry.”
