April 26, 2024

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[THE INVESTOR] Duty-free stores that were newly licensed last year have asked the Korea Customs Service permission to push back their opening to next year, according to the Korea Duty Free Shops Association on June 1.

Under current regulations, operators are required to open newly licensed duty-free outlets within one year, meaning that stores run by operators like Shinsegae and Hyundai Department Store would have had to open by this December.

However, in the wake of the tension between Korea and China over the installment of the US Terminal High Altitude Area Defense system here, duty-free stores have been anxious about a premature opening.

In April, the number of monthly foreign shoppers at duty-free stores in Korea fell under 1 million, hitting its lowest point since the Middle East respiratory syndrome outbreak in 2015.

“If the Korea Customs Service says that we have to open this year, we are ready to do so, but it creates tension with the brands opening shops with us,” said a spokesperson for a duty-free outlet. “Brands are very sensitive to the sales they create in each duty-free outlet, and if they decide that the performance is below expectations, they could pull out.”

Duty-free operators say that losing critical brands could significantly hurt their strengths in the fiercely competitive market.

The KCS has said that it is willing to consider pushing back the opening date for these newly licensed stores by six months, or even a year.

In addition to falling sales, companies are also facing a significant spike in license fees.

The Finance Ministry announced in December that it will be changing regulations to increase license fees from 0.05 percent against revenue to 0.1 to 1.0 percent, depending on sales.

Nine operators including Lotte Duty Free and Shilla Duty Free joined to file a constitutional appeal to block the change, citing issues of fairness.

“The original plan was that these license fees would be increased alongside a change extending duty-free licenses from five years to ten years,” a spokesman for another duty-free operator said.

“The government has since turned down the proposal to extend the license period, but kept the fee increase. Paying such high fees every year in addition to preparing for new license evaluations every five years puts a huge burden on the operators. We want to focus on creating better shopping services for our customers, instead of these regulations.” 

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