Competition heats up over duty free shops

Competition heats up over duty free shops


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Retailers are desperate to expand into the duty free business to cash in on the growing number of foreign tourists and the relaxation of regulations on duty free shops to spur domestic consumption.

Incheon International Airport, which is selling 12 areas in its duty free store, is igniting the competition. The country’s biggest airport reshuffles the store every five years.

Officials from 27 companies attended a briefing about bidding for the sections on Thursday. They will be given the right to participate in bidding early next year.

Among them were major domestic duty free shop operators such as Lotte, Shinsegae, Hotel Shilla, Dongwha and the Korea Tourism Organization (KTO), according to the airport operator.

Several foreign duty free retailers, including DFS, Dufry and King Power, also attended the briefing.

Several small and medium-sized companies also took part, as four of the 12 sections are reserved for them.

The operator said that on average, sales at the airport’s duty free stores had increased 14 percent over the past five years.

The growth rate is big enough to draw a slew of contenders, considering that sales in Korea’s major department stores have been in the doldrums for many months.

Sales at local department stores slipped 6.3 percent in September and 2.2 percent in October, compared with the same months last year, according to Ministry of Trade, Industry and Energy data. Big discount stores had a moderate fall in sales, which remain sluggish.

In contrast, Korea’s sales at duty free shops are expected to reach 7.2 trillion won ($6.5 billion) this year, up from 6.8 trillion won in 2013.

“We are looking for a new business opportunity,” a company’s official said. “It’s hard to find a business with such a proven high growth rate.”

The airport operator plans to increase the lease fee by 10 percent from the previous bidding to cash-in on the fierce competition. The company expects to collect about 700 billion won ($635 million) through the bidding.

“It’s burdensome, but worth it considering the size of the profit we can expect,” the official said.

Industry insiders say the continuing growth of duty free business is largely because of a tourist surge, particularly from China.

An estimated 11.1 million foreigners visited Korea in 2012, many of whom spent time in Seoul. That figure is expected to jump to 13.6 million by the end of the year and 18.7 million in 2018, according to the KTO.

Chinese account for 35 percent of inbound tourists, Japanese 22 percent and Americans 6 percent. A Chinese tourist spends $2,272 in Korea on average, nearly double the $990 a head spent by Japanese.

In other good news for duty free store operators, the limit on tax-free purchases for outbound Koreans will be increased to $600 from $400 in January.

“This will serve as another sales booster,” a KTO official said.

News source : Korea Time : By Park Si-soo