The Korea Customs Service renewed Lotte Group's license for its duty-free store in downtown Seoul (left), Saturday. The customs agency also issued a license to Doosan Group for its first duty-free store at the Doosan Tower in Dongdaemun (center). Shinsegae Group also secured the right to run a shop at its main department store in downtown Seoul (right).

/ Yonhap



Doosan, Shinsegae enter lucrative retail biz in Seoul

By Lee Hyo-sik

Lotte Group has failed to retain a license for its duty free shop at the Lotte World Mall in southern Seoul, which could derail the fifth-largest conglomerate's ambition to become the world's top duty free operator.

SK Group was also unable to renew a license for its sole duty free shop at the Sheraton Walkerhill Hotel in eastern Seoul, exiting the lucrative retail sector for the first time in 23 years.

Doosan Group and Shinsegae Group have secured the much-coveted rights to run their first duty free shops in the capital.

Doosan, the heavy industry conglomerate, will open its first store at the Doosan Tower in Dongdaemun, central Seoul, vowing to make the business its new cash cow.

Shinsegae, Korea's second-largest retail giant, plans to run a shop at its department store in downtown Seoul, securing a much-needed edge to challenge its larger rival Lotte.

On Saturday, the Korea Customs Service (KCS) decided to renew only one of Lotte Duty Free's two expiring licenses.

The customs agency awarded the group the right to operate its duty free shop in downtown Seoul, but took away its license for the Lotte World Mall store. The license was given to Doosan Corp. which desperately sought to run the store at its headquarters.

The KCS also took away a license from SK Networks, which has been operating the store at the Walkerhill Hotel for 23 years, and gave it to Shinsegae.

The agency held a presentation session at its training center in Cheonan, South Chungcheong Province, and the judging panel of KCS officials and private sector experts heard presentations from the CEOs of Lotte, SK, Doosan and Shinsegae.

The judges scored each contender's management capabilities, financial health, business environment, partnerships with small businesses, and community service programs.

KCS officials said Doosan and Shinsegae earned high grades for the locations of their envisioned stores, which Chinese and other foreign tourists visit frequently.

But Lotte's shop in southern Seoul and SK's eastern Seoul outlet reportedly received lower points because they failed to attract as many shoppers as their competitors in other parts of the city did.

Duty free industry insiders say that the KCS's latest decision will likely change the industrial landscape, projecting that Lotte's dominance will weaken in coming years. On the other hand, Shilla Hotel, Shinsegae and Doosan are expected to capture larger market shares.

Lotte accounts for 51 percent of Korea's duty free market, followed by Shilla's 30.5 percent. But with Lotte losing its Lotte World Mall store, its market share is set to decline, while its rivals gain ground

Korea's duty free industry is expected to reach 22 trillion won in 2020, expanding at an annual average of 17 percent over the next five years. In 2014, the market was worth 8.3 trillion won.



Lotte in shock

Lotte officials are shocked because losing the southern Seoul store will deal a serious blow to its duty free business.

The decision is also expected to hurt the group's plan to list Lotte Hotel, which owns the group's duty free operation, next year. Lotte Hotel generates more than 80 percent of its revenue from duty free stores.

The group, which has been embroiled in a sibling feud over managerial control, will also face stiffer competition from Shinsegae, which will open its first duty free store in downtown Seoul. Lotte also has to dismiss about 1,300 workers at the Lotte World Mall store.

Last year, Lotte posted 1.9 trillion won in sales from its duty free store in downtown Seoul and 480 billion won from the one at the Lotte World Mall.

Despite losing one of its two expiring licenses in Seoul, the group said it would more effectively manage its remaining outlets and open more stores abroad to become the world's largest duty free operator.

"We will make up for our shortcomings and manage the rest of our duty free stores well," a Lotte Duty Free spokesman said.

"We will minimize any adverse effects on our employees, business partners and customers, following the KCS decision.

"We will also push ahead with our plan to list the shares of Lotte Hotel as scheduled."



SK exits duty free biz

SK officials are also in shock because the group is being forced to exit the duty free business.

SK Networks, which employs 900 workers at its Walkerhill store, lost a license to Shinsegae Duty Free. The Walkerhill store will be closed today.

The group's store in eastern Seoul reportedly failed to score points because of its relatively low annual sales of 270 billion won, compared to other outlets in Seoul. KCS judges were also reluctant to renew its license because the store is in an area that is not a popular foreign tourist attraction.

SK also failed to win approval to open its second duty free shop in Dongdaemun.



Triumphant Doosan, Shinsegae

Doosan will take over Lotte World Mall's license, which expires on Dec. 31, and open its first duty free store at the Doosan Tower in Dongdaemun, the second-most popular foreign tourist destination after Myeong-dong.

The group, whose construction and heavy equipment-making businesses have struggled in recent years, plans to foster the duty free store as its new cash cow.

Doosan Corp. said it would employ workers from the Lotte and SK stores and help transform its Dongdaemun store into the country's largest duty free outlet.

"Our duty free store will help revitalize other retail businesses in Dongdaemun," a Doosan Corp. spokesman said. "We will also fulfill our promises to share growth with business partners and local communities."

Shinsegae, which failed to win a duty free license in July, can now open a store at its headquarters in downtown Seoul and be better able to challenge larger rival Lotte.

"We are glad that the KCS judging panel highly regarded our capability to operate a globally competitive duty free shop," a Shinsegae spokesman said. "We will make timely investments because we promised to revitalize the domestic tourism industry and grow together with our business partners and community members."