SOUTH KOREA. In big breaking news, the Ministry of Economy and Finance announced yesterday that it will issue six new downtown duty free store licences. In an already overheated market, most Korean travel retail insiders and market analysts had expected only one or two new licences to be issued
For companies classified as large corporations, the government will issue three new licences in Seoul, one in Incheon and one in Gwangju. Along with the five licences for large corporates, another will be issued in South Chungcheong Province for small and medium sized companies (SMEs). Further SME licences may be issued in future.
Bids for the new licences will be called this month. The Korea Customs Service will select the winners in November.
“Three more licences for Seoul is too many,” one senior Korean travel retailer told The Moodie Davitt Report. He bemoaned the continued proliferation of businesses in Seoul which has led to intense financial pressure on retailers as they fight to attract Chinese shoppers (many of them daigou traders) to their stores.
“Hyundai Department Store Duty Free will definitely apply for a new licence to magnify its buying power and influence over the market and increase its economies of scale,” the source said.
Shinsegae Duty Free would be another likely contender. As with Hyundai, it has multiple department stores in which it could locate a new duty free operation.
A committee comprising ten civilian and seven government members decided new licences were required for three reasons: 1) to enhance competitiveness and promote tourism; 2) region-specific needs; 3) to offer further SME opportunities.
The committee made it clear that the licence to be returned by Hanwha Duty Free following the retailer’s decision to close down its Seoul business would not be renewed and did not count towards the new permits.
Retailer proliferation
Number of licences issued (including the new additions): 60 (airport 29, downtown 26, region-specific 4, diplomat business 1)
Licence count by corporation type: Large corporation 25, small and medium company 31, public 4
Of the 26 downtown duty free store licences, 13 are in Seoul; 14 are operated by large corporations and 12 by SMEs.
A source told The Moodie Davitt Report the new licences were fixed according to the rule that any metropolitan region which has shown duty free sales growth exceeding KRW200 billion against the the previous year or an increase of more than 200,000 foreign tourists can have more licences. Jeju and Busan, though qualifying, were excluded. In Jeju’s case, resistance from small businesses and local government won out while Busan’s dormant inbound travel market saw the status quo prevail.
SME rules tighter
The committee also tightened regulations on SME qualification to prevent bigger companies holding stakes in such entities.
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