An industry source associated with one of South Korea’s major travel retailers has admitted it is not surprised by the recent announcement that Doosan Corporation is to close its Doota Duty Free store in April 2020.
According to a regulatory filing from the company seen by TRBusiness, the retailer will cease operations on 30 April 2020, joining Hanwha Group, which closed its Galleria 63 Duty Free business in Seoul this September.
The filing, which indicates duty free sales account for just 2.23% of the company’s revenue, cites the anticipated deterioration of the duty free business in terms of profitability as the main reason for its decision to close.
Located in the Doosan Tower in Dongdaemun Seoul, the Doota Duty Free store experienced a high-profile opening in May 2016. Its license was due to expire in May 2020. According to multiple local Korean and international media reports, South Korean conglomerate Hyundai Department Store Group is in talks to take over the Doota Duty Free store from Doosan Group.
It is important to point out though that duty free licences in South Korea cannot be traded between operators. Should Hyundai wish to take over the Doota Duty Free store, TRBusiness understands it would acquire one of three new downtown duty free licences up for grabs this month. As a result, the Korea Customs Service and the Licence Review Committee would grant the licence, Doota would end its operations as planned in April and Hyundai would begin trading with a new licence.
DOOTA EXIT PLAN
Reflecting on Doota’s withdrawal plans the source told TRBusiness: “The phenomenon of new players coming into the market and pulling out of the business has happened over and over again in this sector. The government encouraged downtown duty free businesses for the Asian Games in 1986 and Olympic Games in Seoul in 1988. At this point, there were 29 players in the Korean downtown duty free sector.
“As the number of foreign tourists plunged due to the Japanese asset price bubble and Severe Acute Respiratory Syndrome SARS, only 10 operators survived. A few years later, seven more players entered the market, as Chinese group tourists flooded into Korea, but the outbreak of the Middle East Respiratory Syndrome prompted many of the new players to return their licences. Now, following on from the THAAD dispute it has become so hard for those without a relevant driving force to survive.”
According to the source, the location of the Doota Duty Free store may not have been conducive to strong sales. “The current Korean duty free industry, where Daigou business has become the mainstream, revolves around the Myeongdong area. It is so hard for a travel retailer to survive if it does not have a downtown store in this area.”
Back in February, TRBusiness revealed the e-commerce law, implemented on 1 January 2019 to regulate China’s online luxury sales market was having no real adverse on South Korean duty free and travel retail revenues.
Offering a more up-to-date assessment of the impact of the e-commerce law, the source said: “Before the implementation of the e-commerce law, there used to be many Daigous who did not report their purchases when returning to their home country to avoid paying tax.
“The market now has reorganised as large Daigou companies capable of pay tax have taken over the market. There were about 500 Daigou agencies in the Korean market before the e-commerce law was introduced. Now, only about 10 agencies have survived. We can assume the uncertainty surrounding this new law has been mostly ironed out.”
The risk, however, remains apparent the source emphasised: “The Chinese government may come up with stricter laws and regulations towards Daigous. Should this be the case, the global travel retail industry will be affected. Nothing is predictable with the Daigou business. That is why it is so important to avoid relying on it.”
Asia & Pacific,
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