The government announcement regarding new duty-free shop operators on Nov. 14 removed the duty-free shop license from Lotte Duty Free Shop’s branch at Lotte World Tower, dealing a huge blow to the Lotte Group. But it is expected that the Lotte Group will keep its number one position in the duty free shop business for the time being.
Analysts say that it is highly likely that Shinsegae will form a three-runner race with the two current front runners – Lotte Duty Free Shop and Shilla Duty Free Shop – and the three will face a strong challenge from Doosan Duty Free Shop based on its stronghold in the Dongdaemun district of Seoul.
On top of that, the addition of HDC Shilla and Hanwha Galleria Duty Free Shop to be opened at the end of this year is expected to make a big change in the duty free shop market. Except for SK Walker-Hill Duty Free Shop and Lotte World Tower Duty Free Shops, currently, duty-free shops in Seoul are located in downtown (Sogong Branch of Lotte Duty-Free Shop and Donghwa Duty-Free Shop), Yongsan (HD Shilla), Yeouido (Hanwha Galleria) and Jangchung-dong (Hotel Shilla).
Last year, in terms of sales, the Sogong Branch of Lotte Duty-Free Shop ranked first with 1.9763 trillion won (US$1.6866 billion), followed by Shilla Duty-Free Shop (1.1521 trillion won or US$983 million), the World Tower Branch of Lotte Duty-Free Shop (482.0 billion won or US$411 million), Donghwa Duty-Free Shop (291.9 billion won or US$249.1 million), Walker-Hill Duty Free-Shop (274.7 billion won or US$234.4 million), and the COEX Branch of Lotte Duty-Free Shop (173.2 billion won or US$147.8 million).
Lotte Duty-Free Shop posts over two trillion won in sales a year, even excluding sales of its World Tower Branch, which hover around 500 billion won. But it is a burden on Lotte that Shinsegae will open a duty-free shop near the Sogong Branch of Lotte Duty-Free Shop and compete with it.
It is likely that Shinsegae Duty-Free Shop will erode the sales of the Sogong Branch of the Lotte Duty-Free Shop when the Shinsegae Duty-Free Shop opens under the slogan of “promoting urban tourism.” A key point for Lotte is whether it will lose its customers to Shinsegae Duty-Free Shop or it will create synergies with the newcomer.
Shinsegae aims to become one of the Big Three with Lotte and Shilla in the duty-free shop business based on its good location of Namdaemun and its rich experiences in the distribution business such as department stores, e-Mart and premium outlets.
Shilla Duty Free Shop at Shilla Hotel in Jangchung-dong will face a new factor in its business due to the opening of Doosan Duty-Free Shop in Dongdaemun. Dongdaemun has missed a duty-free shop although the area is the most popular place after Myeongdong among foreigners. Shilla Duty-Free Shop has been able to absorb tourists from Dongdaemun but now has to compete with Doosan Duty-Free Shop.
Experts say that when Shinsegae Duty-Free Shop and Doosan Duty-Free Shop begin their business operations on a full scale, they will be able to post about one trillion won in sales a year. Shinsegae Duty-Free Shop and Doosan Duty-Free Shop are planning floor spaces of 33,400 m2 and 17,000 m2 for their shops, respectively. At the moment, Sogong Branch of Lotte Duty-Free Shop has the widest floor space – 13,355 m2.
HDC Shilla Duty-Free Shop and Hanwha Galleria Duty-Free Shop, both of which will open at the end of this year will be up against competition with those in big trading areas and therefore, devise measure against them. This is because their locations of Yongsan and Yeouido are disadvantageous compared to Myeongdong or Dongdaemun. Donghwa Duty-Free Shop and SM Duty-Free Shop relatively smaller than others need to develop niche markets between big downtown duty-free shops – Lotte and Shinsegae.
Another interesting point in the new duty-free shop business landscape is that Shinsegae will face off with Hotel Shilla in the duty-free shop business since the owners of Shinsegae and Hotel Shilla are relatives.
Shinsegae spun off from the Samsung Group in 1991. Since then Shinsegae has yearned to obtain a duty-free shop business license for about 20 years and now catches it. The Samsung Group is engaging in the duty-free shop business via Hotel Lotte led by president Lee Boo-jin. The Samsung Group gave up its distribution business by selling off Samsung Plaza and Homeplus. Since then, Samsung and Shinsegae have not come across in the same business but now will duke it out with each other again in the duty-free shop business.