Recently, the government decided to increase the number of tax-free shop licenses in the city, causing existing operators to express concern. Given the already deteriorating duty-free market, which has led to decreased revenue and ongoing losses, there are worries that the entry of new duty-free shops could intensify competition for attracting customers.
According to related industries on the 4th, the Ministry of Economy and Finance held the '6th Free Trade Zone Sales Outlet Operation Committee' on the 29th of last month, chaired by First Vice Minister Lee Hyung-il, and decided to add two licenses in Seoul and one in Jeolla Province for small and medium-sized enterprises. The Korea Customs Service plans to announce a public notice and proceed with follow-up procedures, including the licensing review committee, soon for the selection of new operators. Unlike general retail trades, duty-free shops must be operated under a government license.
Currently, there are seven duty-free shops operating in downtown Seoul: Lotte (Myeongdong Main Store, World Tower Store), Shinsegae (Myeongdong Store), Shilla (Seoul Store), Hyundai (Trade Center Store), HDC Shilla Duty Free, and Dongwha (Dongwha Duty Free). They are concerned that, as they downsize their existing shop sizes and even close some due to the worsening market conditions, the entry of other operators could cause customer dispersion and intensify competition.
Hyundai Duty Free closed its Dongdaemun store last July due to declining profitability. Additionally, it decided to reduce operations at the Trade Center Store from three floors on the existing 8th to 10th floors to two floors on the 8th and 9th. Lotte Duty Free is also operating its World Tower Store on a reduced scale since last year.
The main background of the deteriorating duty-free market is the changing consumption patterns of foreign tourists. Rather than purchasing luxury goods in bulk at duty-free shops like before, the main consumption venues have shifted to K-beauty and K-fashion at stores like Olive Young, Daiso, and Musinsa.
According to a preliminary report for the second quarter of 2025 by the Korea Culture and Tourism Institute (KCTI), the most popular shopping locations among foreign tourists are road shops (49.6%). Large shopping malls and department stores followed with 39% each, while downtown duty-free shops accounted for only 28%.
This is leading to a decrease in the average spending per customer at duty-free shops. According to the Korea Duty Free Shops Association, the number of foreign visitors to domestic duty-free shops in the first half of this year was about 5.13 million, a 16.1% increase compared to the same period last year (4.42 million). However, during the same period, the sales revenue of domestic duty-free shops aimed at foreigners was 4.8415 trillion won, a decrease of 34.5% from last year's same period (7.3969 trillion won). Even with an increase in visitors, spending amounts have decreased, leading to a 43% drop in the average spending per foreign customer in the first half, which remained at 940,000 won.
Domestic small and medium-sized duty-free shop operators include Gyeongbokgung Duty Free, City Duty Free, and Panpan Duty Free. Unlike large corporate duty-free shops that handle a wide range of products including luxury goods, these companies mainly sell food items such as kimchi and gochujang, as well as cosmetics, which foreign tourists purchase in smaller but steady quantities, allowing them to maintain relatively high revenue.
For example, Gyeongbokgung Duty Free recorded sales of 213.5 billion won and an operating profit of 13.6 billion won last year, achieving an operating profit margin of 6.4%. In contrast, large corporate duty-free operators collectively reported losses in the hundreds of millions, with some exceeding 100 billion won last year.
A representative from one duty-free operator noted, "If a small to medium-sized duty-free shop that is making profits opens a downtown duty-free store in Seoul, it will undoubtedly impact existing operators. Especially if these companies implement aggressive discount policies on food products where they have strengths, it could become difficult for competition."
A representative from another company said, "As the duty-free market is not doing well, it seems that small and medium-sized operators will use different sales strategies compared to the existing large corporations, and the location of new stores will also affect existing operators."