April 24, 2024

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[THE INVESTOR] Hanwha's retail arm Hanwha Galleria Timeworld jumped into the Seoul duty-free business with its first outlet in Seoul at the end of last year, hoping to find a new engine for growth.

As one of five duty-free store operators newly licensed last year, Hanwha was tasked with finding a competitive edge against more established operators such as Lotte and Hotel Shilla.

 

The interior of Hanwha’s Galleria Duty Free 63 in the 63 building in Yeouido, Seoul.

After Lotte’s duty-free outlet in the Lotte World Mall near amusement park Lotte World lost its license, Hanwha saw an opportunity to market its outlet as a one-stop destination shopping and tourism.

Hanwha‘s Galleria Duty Free 63 stands in the landmark Hanwha 63 City by the Han River in Seoul‘s Yeouido district, more often referred to as just the 63 Building.

“Many of the other duty-free stores are in areas that are specialized for shopping, such as Myeongdong,” a spokesman for Hanwha Galleria told The Korea Herald. “We hope to attract tourists by combining shopping with the abundant tourist attractions around the 63 Building.” 

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The building has an observatory and gallery at the top, as well as an aquarium. The “Aqua Planet 63” also underwent a seven-month renovation and was reopened two weeks ahead of the grand opening of the duty-free store.

After partial operations began on Dec. 28 last year, Hanwha’s duty-free store celebrated its grand opening on July 15 with about 540 brands.

The store has seen a steady rise in daily sales, from 100 million to 200 million won to roughly 800 million won as of the end of July.

“We expect sales to continue rising as we strengthen our brand lineup,” the spokesman said.

Despite rising sales, Hanwha Galleria saw operational losses of 1.5 billion won and net losses of over 2 billion won in the first quarter this year because of the initial investment in constructing the tax-free outlet. Without the so-called “Big 3” of luxury duty-free shopping -- Louis Vuitton, Chanel, and Hermes -- Hanwha has been particularly aggressive in its marketing, offering chances to win gift cards, gold bars and more to lure in customers.

“We issued about 200 billion won of convertible bonds to raise funds for the duty-free store, so initially losses were inevitable,” said the spokesman, acknowledging that Hanwha Galleria‘s stock prices were likely to remain low until the end of the year.

“As more new duty-free stores enter the market, the competition will become more intense, meaning that everyone will be spending more on marketing,” he said.

Experts are mixed on the company’s outlook, as the local duty-free market, after years of explosive growth on the back of a surge in big-spending Chinese tourists, braces for heated competition with the entry of new players.

Analyst Choi Min-ha of Korea Investment & Securities predicts sales at Hanwha‘s outlet to rise, with stronger brands and larger tourist groups visiting in the second half of the year.

After bringing in Gucci in June, Galleria Duty Free will be opening stores for other Kering Group brands such as Bottega Veneta, Balenciaga and Saint Laurent in September.

Seo Jung-yeon of Shinyoung Securities was more cautious. She said that the strength of Hanwha Galleria, and the level of competition in the duty-free sector, will become clear “after additional licenses are approved at the end of the year.”

Retail, paired up with construction, form one of the five cores of Hanwha’s business portfolio. Hanwha Group Chairman Kim Seung-youn‘s youngest son, Dong-seon who works at Hanwha’s construction unit, was involved in the group-wide effort to win the duty-free license last year and the opening of the outlet.


By Won Ho-jung/The Korea Herald (hjwon@heraldcorp.com)