South Korea’s SMEs plot niche concessions drive amid downturn

By David Hayes and Luke Barras-hill |

Kyung Bok Kung Duty Free store.

South Korea’s small and medium-sized duty free operators have been restructuring operations over the past 18 months, as the Covid-19 pandemic forces the smallest players to shutter shops and take immediate action to cope with the sharp plunge in sales.

Kyung Bok Kung Duty Free (formerly Entas Duty Free) is seeking future opportunities to operate duty free shops at Incheon International Airport and those reserved for SMEs at provincial airports, TRBusiness has been told.

“We are planning to open more duty free shops but the government is not into opening more shops right now, so we are waiting for the government’s response,” said Chris Park, Entas’ Chief of Administration No. 1 Department.

“We changed our name from Entas Duty Free to Kyung Bok Kung Duty Free because our holding company Entas’s main restaurant chain is called ‘Gyeong Bok Gung’, which means ‘palace’ in Korean.

“Kyung Bok Kung Duty Free Free is more widely known among Korean people than Entas as it is the name of the Emperor’s historic palace in Seoul’s Jongno District.”

BUSINESS TOUGH AT ARRIVALS

As reported, Kyung Bok Kung Duty Free has capitalised at the airport following the withdrawal of SM Duty Free from it’s Incheon T1 arrivals concession.

Alongside the two shops at T1, which span a total of 380sq m, the company also runs a 326sq m arrivals unit in T2 after winning a bid in 2019.

In addition, Kyung Bok Kung Duty Free runs a departure and liquor and tobacco shop in T1 in the central concourse opposite the flagship Louis Vuitton store.

“Because of Covid there are not many plane departures listed on the flight boards, so there are few customers for us or other duty free operators,” commented Park. “Our shops are open and selling a few things; it’s hard going.”

Despite successfully bidding for the Busan Gimhae International Airport arrivals mixed category licence last year, Entas closed its Paradise City downtown store (located next to Incheon International Airport in the Paradise City integrated resort).

SM Duty Free relinquished its Incheon Airport T1 arrivals licence last year. This prompted a new bidding round, with Kyung Bok Kung Duty Free securing the concession earlier this year.

Meanwhile, TRBusiness understands that state-run Jeju Development Corporation’s (JDC) domestic duty free shop in Jeju Airport has almost maintained pre- Covid sales levels.

JDC recorded sales worth KRW448.5 billion/$412.9 million in 2020, down from KRW500.2 billion/$433.5 million the previous year due to Covid-19, TRBusiness gathers from reliable industry sources.

Jeju Tourist Organisation’s (JTO) smaller duty free store recorded sales worth KRW31 billion in 2020, down 7.2% from KRW33.4 billion the previous year.

“Many people miss travelling abroad, so instead they are golfing in South Korea,” said a duty free source in Seoul.

Also planning to grow in the future is Grand Duty Free, which operates several duty free outlets including a downtown shop in Daegu city and a Daegu International Airport shop, in addition to the Jeju Air inflight duty free service.

Grand’s Daegu downtown store enables the company to offer online duty free shopping services for airport collection on departure.

Grand also operates Incheon Airport’s T1 SME cosmetics boutique concession located off the central T1 concourse facing the Louis Vuitton boutique.

NEW FACES; LICENCES RETURNED

However, these developments have to be understood in the context of an operating climate that has forced SMEs to close unprofitable stores and cut staff, retaining only outlets offering the possibility of future profits once the Covid-19 pandemic has passed.

This is in stark contrast to South Korea’s larger operators such as Lotte Duty Free and The Shilla Duty Free, which are able to entice daigou sales through the promise of top brands and high stock levels.

Others like Hyundai Duty Free, which as TRBusiness revealed exclusively last month are set to unveil new luxury boutiques at Incheon later this year, represent an intriguing new addition to the conventional ‘big three’ operator mix.

South Korea’s SME operators face sizeable challenges, not least the allure of top brands and product sales offered by their bigger rivals that are required to sustain influential daigou sales.

SM Duty Free became the first SME casualty to leave the duty free industry last year, handing back its Incheon Airport T1 arrival shop licence to the airport authority and closing its Seoul downtown store in Insadong.

CityPlus Duty Free is another to have returned shops at Incheon Airport due to low sales, although it still retains its Incheon T2 food shop licence.

“We finished with our Incheon Airport shops as it’s a difficult situation; coronavirus has decreased the number of foreign tourists,” a senior industry source familiar with the business told this publication.

CityPlus also shuttered its western Seoul downtown store in 2019 due to rental problems with the building’s landlord.

Industry estimates put duty free sales for South Korea’s SME operators at roughly $350m in 2019.

Those same estimates put SME sales down by more than 80% in 2020, as smaller operators were unable to benefit from leading brand daigou sales, as mentioned.

To read the full report, click here.

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