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Duty-free shops face falling profitability amid steep competition

All Headlines 13:48 February 04, 2017

SEOUL, Feb. 4 (Yonhap) -- South Korea's duty-free outlets have sharply increased their sales but struggled to raise actual profits amid fierce competition, data indicated Saturday.

The combined revenue of local duty-free stores hit a record high of 12.2 trillion won (US$10.4 billion) last year, according to the Korea Customs Service.

It marks a 33.5-percent rise from a year earlier. Their sales jumped to 8.3 trillion won in 2014 from 6.8 trillion won in 2013. Having suffered a fall in 2015, hit by the impact of MERS, their sales bounced back last year.

Despite growth in sales, business conditions for the nation's duty-free shops do not look rosy.

"Profitability has worsened due to an increase in costs in general amid deepening competition from a considerable rise in the number of duty-free stores," an industry official said. "Excessive competition is occurring as they are staging a reckless marketing campaign for survival."

A South Korean duty-free shop is crowded with customers in this file photo. (Yonhap)

Lotte Duty Free is projected to have reaped 5.9 trillion won in sales last year, a sharp rise from 4.3 trillion won in 2015. But its operating profit ratio has dropped to 6-7 percent from 8.9 percent in 2015.

Shilla Duty Free's operating profit declined to 79 billion won last year from 91.2 billion won a year earlier, although its sales expanded from 2.9 trillion won to 3.3 trillion won.

Another problem is that local duty-free outlets are excessively dependent on Chinese customers.

It means the stores are susceptible to a sudden drop in the number of Chinese tourists here, with Seoul and Beijing locked in diplomatic stand-offs over Washington's plan to deploy a THAAD missile defense system on the peninsula.

lcd@yna.co.kr
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