SOUTH KOREA. The Korean government is set to review the downtown duty free licensing system, according to local media, and may move to change registration and approval processes for licences, as well as extending licence terms from five to ten years (as before).
As reported, Korea Customs Service introduced a new five yearly bidding process for the lucrative licences in 2013, replacing the semi-automatic, ten-year renewal system of the past.
That change led directly to the much-criticised results of the open bids for three Seoul downtown licences in November – where Lotte Duty Free lost its permit to run its acclaimed Lotte World Tower store (despite a recent US$256 million investment in building it) and the much-respected WalkerHill Duty Free store (SK Networks) suffered a similar fate. The retailers will be replaced by industry newcomer Doosan Group and Shinsegae Duty Free respectively.
As a result both losing retailers are having to shut down their duty free operations in early 2016, sell off duty free stock and dismiss hundreds of staff. Many Lotte Duty Free employees have since staged street protests about the decision.
In late December President Park Geun-hye slammed Korean lawmakers for changing the downtown duty free licence system without adequate research and debate.
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WalkerHill Duty Free, Seoul: After 26 years of excellence, the store lost its licence through the new system |
The respected Hankook Ilbo daily newspaper reported this week that, in response to a question by National Assembly member Park In-sook, Customs authorities acknowledged that they are now considering wide scale changes to the licence bidding system. Rather than the current “approval system via bidding”, a more lenient registration system could be introduced. Customs also noted that it was considering extending licence terms from five back to ten.
Customs is now researching the options and studying how to restructure the system, said the report.
One prominent Korean travel retail industry expert told The Moodie Report that the move could mean an effective end to the bidding system introduced in 2013.
He said: “If the licences are granted to applicants with specific qualifications, it means there will be no more bidding for new downtown licences and government will evaluate strictly the business plan and qualifications.”
If agreed, the changes to the licensing system could be implemented this year.
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(Above and below) Lotte World Mall’s duty free licence was key to attracting Chinese tourists to the spectacular new Lotte World Tower. That licence was lost to industry newcomer Doosan Group despite a US$256 million investment and surging sales in 2015 |
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In an interview in late November with Korea’s leading newspaper The Chosun Daily, The Moodie Report Chairman Martin Moodie called for an urgent review into both the recent decisions and the new five-year bidding system.
He told the newspaper: “The new system will really discourage long-term investment because no retailer can be confident that they will retain their business five years down the line. Similarly, big international brands will be reluctant to work with the downtown duty free retailers as there will be no guarantee that such companies will still be in business in the future. It is an absolute catastrophe.
“For example, the new Shilla IPark duty free store, a joint venture between Shilla and Hyundai Development Company, will be the world’s biggest duty free store and attract millions of Chinese tourists. Are you seriously proposing that such an investment should be subject to a licence renewal system – and potential loss of business – every five years?”
He concluded: “In my view the government should urgently set up a full review into the licencing system. It should permit Doosan and Shinsegae to open additional stores as these will help rejuvenate the Myeongdong and Dongdaemun areas and promote more competition. But it should be brave enough to say that shutting down Lotte Duty Free at World Tower and WalkerHill Duty Free is unfair and short-sighted.”
