The award of an SME license to a provincial government agency in Jeju has created local controversy following the award of four downtown duty free licenses for Seoul and Jeju Island by Korea Customs Service (KCS) last Friday.

The selections made by KCS have surprised many, with one operator, who was considered a hot favourite, failing to win a license in the capital.

However, the greatest controversy has been provoked by KCS’ decision to award the Jeju SME downtown duty free license to Jeju Tourism Organisation (JTO). Competing bidders believe it to be unfair that a provincial government organisation has won the license after the South Korean central government earlier indicated state-run organisations would no longer receive government support to run duty free shops.

This policy recently has resulted in Korea Tourism Organisation (KTO), a completely separate national organisation to JTO, losing duty free concessions at Incheon International Airport and various seaports due to a lack of central government support.

WHAT HAPPENS NEXT…

“The Jeju SME downtown license award has caused controversy as JTO is a provincial government agency, but was listed as a private SME for the bid,” a duty free industry source in Seoul, told TRBusiness.

“The other SME bidders have complained that JTO has got the Jeju license while KTO has been withdrawing from duty free. They say ‘why did JTO get the license as state organisations are considered to be less efficient?’. It’s controversial, but no more is likely to happen.”

A lack of parking space is thought to be the main reason that KCS rejected Shinsegae Duty Free’s bid for one of the two ‘large operator’ duty free licenses awarded last Friday (10 July).

The decision shocked a large section of South Korea’s US$7.9bn annual duty free industry. Many felt certain that Shinsegae’s plans to convert its flagship department store in Seoul’s bustling central Namdaemun shopping district – into a duty free shop – would win one of the two big operator licenses on offer.

SHOCK FOR SHINSEGAE

The HDC Shilla Duty Free Shop consortium, as expected, won one of the two big duty free store licenses and duty free newcomer, Hanwha Galleria Timeworld, the other. In addition, KCS awarded small operator SM Duty Free an SME downtown duty free license for Seoul and Jeju Tourism Organisation an SME downtown license for Jeju Island.

“Everyone in the industry was so shocked as they expected Shinsegae to win one of the licenses,” said the duty free industry source in Seoul. “No one expected them to be ruled out as they had such a big plan and had prepared for so long.

“Their only weak point was that Shinsegae has no parking space near the store and Namdaemun is crowded; so they prepared an offsite parking plan. Everyone is stunned with this result.”

However, the decision to award HDC Shilla Duty Free Shop one of the licenses was expected by South Korea’s duty free industry. The size of the store and the associated entertainment facilities promise to make an important contribution to Seoul’s downtown duty free shopping and tourist facilities.

Hanwha Galleria Timeworld’s success in gaining the other large-scale Seoul downtown shop license on offer was less expected.

FIRST DOWNTOWN DF SHOP IN WEST SEOUL

KCS is thought to have favoured the bid as Hanwha will open its downtown shop in the ground floor of the iconic Hanwha 63 Building in Youido Island, the capital’s financial district. The new outlet will become the first downtown duty free shop in west Seoul, an area which recently has begun to attract more tourists.

“There is a large ground floor area for the shop,” added the source in Seoul. “It needs a big investment to convert to retail space, but the building is in a good location – there is a big parking lot and there are no traffic jams there. Youido has seen a big increase in tourists, but it’s not like Namdaemun.”

SM Duty Free was awarded the Seoul SME downtown license. The company, which recently won one of the two SME fashion and general merchandise concessions at Incheon International Airport, is controlled by Hana Tour, South Korea’s largest outbound tour company, which has a majority shareholding of almost 70%.

SM Duty Free will open a duty free shop in the company’s head office in Seoul’s central Insadong tourist district near historic royal palaces, museums and other attractions. The location lacks parking facilities suggesting the shop it will serve tourists walking in the quaint, historic Insadong shopping district.

The Eugene Group previously was considered a front runner for the Seoul SME license and had proposed building a 10,000sq m duty free store in the former Korea Broadcasting Corporation (KBC) headquarters building that it now owns in Yeouido island. However, Eugene apparently lost out when Hanwha was awarded a large-scale shop license as its own premises were judged too close to Hanwha’s proposed shop site.