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SOUTH KOREA. The Korean government has today announced several major policy revisions pertaining to the duty free industry, designed to boost the sector’s competitiveness and restrict market dominance by bigger players.
However there was no announcement on whether new licences will be created or, crucially, whether those held by Lotte World Tower Duty Free and WalkerHill Duty Free (and about to expire) will be extended. A further policy announcement on this matter is expected mid-April (see table below), just after the National Assembly elections on 13 April.
Following a government review the new policies revealed today focus on three key areas:
• Boosting the duty free industry’s competitiveness
• Improving the industry’s structure, particularly related to market dominance by “oligopolistic players”
• Encourage and maximize corporate social responsibility by retailer
Key points of the new policies include:
* Licence terms will be doubled from five to ten years
* Licences will be automatically renewed from now on (for qualified players)
* Licence fees for the major players will be increased though sensible thresholds will apply
* Licence fees will be calculated on a site by site basis. For The Shilla Duty Free, for example, the fee will be calculated separately for its Jangchung and Jeju sites, while Lotte’s will be calculated on a similar basis.
As reported, the changes are a response to industry turmoil caused by events last November which saw long-established retailers Lotte World Duty Free and WalkerHill Duty Free controversially lose their respective licences to Doosan Group and Shinsegae Duty Free. Under the revised system introduced in 2013, retailers’ licenses expire every five years and can be contested by rivals.
That system – and particularly the November results – have caused an uproar in Korean business and political circles with the system widely seen as a punitive and illogical disincentive for retailers and brands to invest in a vital sector of the all-important tourism industry.
KDB Daewoo Securities Co Equity Analyst (Cosmetics, Hotel & Leisure, Fashion) Regina Hahm, told The Moodie Report: “Given that we are now free from the severe regulation of restricting the licence life, the policy revisions seem positive overall.”
Asked about the possible creation of new licences and the extension of Lotte World Tower and WalkerHill Duty Free ones, she commented: “It is very uncertain if they can revive the expired licences this time, as we have official requirements for granting new licences in an area. For us to have new licences in Seoul, the number of inbound travellers in the Seoul area must have increased by more than 300,000 in 2015, compared to the year earlier. As we had the MERS outbreak in 2015, the condition seems unachievable.”
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These tables, courtesy of KDB Daewoo Securities Co, show the key policy changes, issues and timeline |
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Click on the above to view the enlarged image |
