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Duty-free operators brace for prolonged downturn amid THAAD row

All News 09:00 June 24, 2017

SEOUL, June 24 (Yonhap) -- South Korea's duty-free shop operators are bracing for a long-term downturn as Beijing's tour restriction over a diplomatic row shows no signs of being lifted, industry sources said Saturday.

On Wednesday, about 40 senior officials at Lotte Duty Free, South Korea's top duty-free operator, said they will return 10 percent of their salaries as part of an effort to overcome the current crisis.

The number of Chinese tourists dropped 66.6 percent in April compared with the same period last year after the Chinese government banned the country's travel agencies from selling Korea-bound package tours in an apparent retaliation over the deployment of a U.S. missile system here. The comparable figure for May will not be available until June 30.

Beijing's travel ban, which took effect in mid-March, dealt a blow to the local duty-free industry, which has heavily relied on Chinese customers. Chinese tourists accounted for 46.8 percent of all tourists coming to South Korea last year.

The sales to foreigners at local duty-free shops surged 11.1 percent on-month to US$655.9 million in May in the first increase in three months, but many in the sector said they cannot yet feel the rebound.

"There could be various factors that contributed to the surge, but what is more meaningful to us is the on-year increase," one industry source said, adding the figure has clearly dropped. "We don't think the situation will largely improve until the Chinese government lifts the ban."

In this file photo taken on Aug. 1, 2016, a Seoul department store is bustling with foreign tourists. (Yonhap)

Another major duty-free operator, Hanwha Galleria, asked the Korea Airports Corp. to change the way it pays rent to reflect sales. This in effect is a demand for rent to be cut.

"In case of our duty-free shop at Jeju airport, the rent has hovered above our sales since the number of flights decreased in the wake of the China travel ban," an official at Hanwha Galleria said.

There are even speculations that the duty-free operator will return its license to run the business at the airport if the rent is not adjusted to reflect difficult times.

In a recent interview with Reuters, South Korea's President Moon Jae-in said he will ask his Chinese counterpart Xi Jinping to remove the retaliatory measures against Korean firms and products. He expressed hope to hold talks with Xi on the sidelines of the Group of 20 summit in Germany next month.

"Even if the ban is lifted right now, it takes at least two to three months for travel companies to prepare programs and recruit people, so for us, the prospect for the summer peak season is not bright," another industry source said.

Duty-free shop operators are striving to find a breakthrough by attracting more tourists from other countries and expanding businesses abroad.

In April, the operator of Shilla Duty Free secured the business license for the fragrance, cosmetics and fashion accessories zones at Hong Kong International Airport, with the outlets scheduled to open in December.

It currently operates duty-free shops at Singapore's Changi Airport and Incheon International Airport, west of Seoul. When the outlets at the Hong Kong airport open, Hotel Shilla will become the world's first duty-free shop operator to run stores in Asia's three largest airports, it said.

Earlier this month, Lotte Duty Free also opened an outlet in central Bangkok, underscoring its push to expand its overseas foothold.

The Bangkok store is the second outlet Lotte opened abroad this year following one in Da Nang airport in Vietnam. It currently runs seven stores in five countries abroad, including Indonesia, Japan and the United States.

This file photo taken on April 24, 2017, shows Lotte Duty Free store in eastern Seoul. (Yonhap)


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