Rebates from Duty-free Shops Amount to 1.1654 Trillion Won Since 2009

Korean duty-free shops have paid over 1.1654 trillion won (US$1.0957 billion) of rebates to travel agencies and tour guides in exchange for bringing tourists from 2009 until August this year.

According to the Inspection of State Administration (ISA) data that the Korea Customs Service submitted to Congressman Hong Jong-haak (from the New Politics Alliance for Democracy) at the Strategy and Finance Committee of the National Assembly on Oct. 14, 83.3 percent of total rebates, equivalent to 976.8 billion won (US$917.5 million), were paid by Lotte duty-free Shop and Shilla duty-free Shop.

During the first half of this year until August especially, the total rebates paid to travel agencies and tour guides reached 304.6 billion won (US$286.9 million), which already exceeded the total rebate amount of last year.

By year, rebates have increased steadily from 100.1 billion won (US$94.02 million) in 2009 to 100.6 billion won (US$94.55 million) in 2010, 142.6 billion won (US$133.9 million) in 2011, 220.1 billion won (US$206.9 million) 2012, and 296.6 billion won (US$278.9 million) in 2013.

Congressman Hong speculated on the reasons for increasing rebates by saying that the duty-free shops of large conglomerates entered into excessive competition due to an increase in Chinese tourists, the majority of which belong to low-priced group tours.

The number of foreign tourists visiting Korea increased 55.8 percent from 7.82 million in 2009 to 12.18 million last year. The number of Chinese tourists in groups hiked 223.1 percent from 1.34 million to 4.33 million last year.

Hong pointed out, “As sales to Chinese group tourists are increasing, competition among large duty-free shops is becoming more intense. Accordingly, rebates continue to increase as well. In this situation of excessive competition, small and medium-sized duty-free shops are inevitably hurt. Therefore, there shall be reasonable regulations on rebates.”

In the meantime, Hotel Shilla announced on Oct. 14 that it obtained a license to conduct duty-free business at Macau International Airport, following Singapore Changi Airport, and will start doing so on Nov. 7. Hotel Shilla participated in the tender to acquire the duty-free shop license by establishing a joint company “Sky Shilla duty-free” with “Sky Connection,” a duty-free shop operator in Hong Kong. Hotel Shilla owns 40 percent of the joint company, whereas Sky Connection owns 60 percent. Hotel Shilla will be in charge of perfume, cosmetics, and fashion brands, whereas Sky Connection will handle liquor, cigarettes, and local products.