SOUTH KOREA. The Hanwha Group has announced the closure of its heavy loss-making Galleria Duty Free 63 business in Seoul by September.

The powerful conglomerate’s retail division revealed the decision, widely expected in Korean travel retail circles, yesterday.

All that glitters was not gold, at least not in duty free, for Hanwha Galleria.

As reported, Hanwha had triumphed in a highly competitive bid for one of several new duty free licences in 2015 issued by the government at the height of the Chinese tourism boom. The store, soft opened in December 2015 and formally inaugurated in July 2016, is sited close to the tourist attractions of Yeouido, which features Seoul’s main business and investment banking district

Galleria Duty Free 63 takes its name from its location inside the 63 Building, one of Seoul’s best-known landmarks, which attracts some 3.32 million visitors annually. The building is famed for its shimmering golden hues (it is the world’s tallest gold-clad structure) and expansive views of Seoul and the majestic Han River which runs through the capital.

“A Golden Journey has begun,” pledged Hanwha Galleria when it celebrated the grand opening in July 2016. But gold has turned to dust in the face of crippling losses accentuated by the collapse of Chinese group tourism business as the THAAD row between the Republic of Korea and China escalated from March 2017. From that point, Korean retailers began to provide big volume-purchase rebates and other incentives to Chinese daigou traders that severely eroded sector profitability. The combination of far too many businesses (caused by the licence proliferation) chasing the daigou channel placed immense strain on the whole sector through 2017 and 2018.

Korean duty free: A special report

Look out in coming days for Martin Moodie’s comprehensive on location round-up from the world’s biggest duty free market, which explores the daigou-related and licence proliferation issues which have undermined the world’s biggest duty free market in recent years. It includes interviews with:

• Lotte Duty Free CEO Kap Lee
• The Shilla Duty Free President of Travel Retail Division Ingyu Han
• Hyundai Duty Free Managing Director Yuk Woo Seok
• Shinsegae Duty Free MD Merchandising Team Director Seok-Ho Hong
• Entas Duty Free CEO David Yu
• Korean Air General Manager Inflight Sales Team Seung Joon Oh
• Incheon International Airport Corporation Executive Director/Concession Development Group Chang-Kyu Kim

“Though Hanwha estimates the accumulated operating loss from the business at US$86 million, if you include all the costs sunk into the business the actual losses may be far beyond that amount,” a leading Korean travel retailer told The Moodie Davitt Report.

“It was only a matter of time before someone realised the market cannot support the number of licences available profitably,” one of Asia’s most senior luxury brand executives, speaking anonymously, told The Moodie Davitt Report today. “It will be interesting to see if any others are brave enough to follow.”

Attention will now shift to the fate of Hanwha’s duty free licence. “I expect Korea Customs Service (KCS) to put the licence given up by Hanwha to bid or arrange for another enterprise to take over the business,” the retail executive told The Moodie Davitt Report. “In the middle of next month KCS will hold a system enhancement committee to decide on the proposed new licences for Seoul and Jeju [at least two are expected to be granted -Ed]. I believe that the agency will still allow these licences.”

More to follow.