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Jul 13, 2015
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S.Korea picks Hotel Shilla JV, Hanwha for Seoul duty-free stores

By
Reuters
Published
Jul 13, 2015

South Korea on Friday awarded coveted licences to operate duty free stores in downtown Seoul to a joint venture that includes Hotel Shilla, one of the world's biggest duty free chains, and to Hanwha Galleria Timeworld.

The Seoul licences were the first to be granted to large retailers in 15 years as South Korea, the world's largest duty-free market, competes for tourist shoppers with China and Japan.


Seven of South Korea's biggest retail groups were vying for the right to open duty free shops that could generate up to 2 trillion won ($1.84 billion) in annual revenue each, some of the bidders estimated.

A new licence was seen as especially crucial for Hotel Shilla, part of the Samsung Group and the No. 6 global duty free operator, which has been unable for several years to win city approval to expand its current Seoul duty free outlet.

Hotel Shilla teamed up in its bid with Hyundai Development , and the two plan to build a 27,400-square metre store that would be the world's biggest downtown duty free outlet, with parking for 400 tour buses.

Hanwha Galleria Timeworld, a unit of luxury department store operator Hanwha Galleria, will build a store inside its landmark gold-coloured skyscraper beside the Han River.

Shares in Hanwha Galleria Timeworld soared by 30 percent, the daily limit, on Friday ahead of the announcement by South Korea's customs agency, while Hotel Shilla shares closed up about 9 percent. Presentations by the seven bidders began on Thursday afternoon.

South Korea is looking to bulk up a duty free sector that brought in nearly $8 billion last year. Chinese tourists accounted for about 70 percent of South Korean downtown duty-free spending last year, up from around 15 percent in 2011, according to Lotte Shopping's Lotte Duty Free, the world's No.4 operator, one of the unsuccessful bidders.

However, buoyed by the weak yen and increased tax-free shopping, Japan attracted more Chinese visitors than South Korea did through May this year for the first time in five years. Last year, China opened the world's largest duty-free shop, on Hainan island.

The new licences were issued as tourism in South Korea takes a hit from the recent outbreak of Middle East Respiratory Syndrome (MERS), which caused more than 130,000 trip cancellations and saw duty-free revenues in the fourth week of June down by more than 40 percent year-on-year.

"There is definitely a sense of alarm that other countries like Japan could gain momentum while South Korea is slowed down by MERS," said Sean Lee, an analyst at Hyundai Securities.

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