UPDATE : 2018.11.19 MON 18:09
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Duty-free shops face falling profitability amid steep competition

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 chains 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 in a short time," 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 the hefty commissions paid to travel agencies taking tourists to duty-free shops.

Last year, the operators of 22 duty-free stores nationwide paid a total of 967.2 billion won in such commissions, up 71.8 percent from a year earlier.

The amount has continued to surge from 296.6 billion won in 2013 to 548.6 billion won in 2014 and 563 billion won in 2015.

"Most of the commissions flowed into China," another industry official said, adding local duty-free outlets are excessively dependent on Chinese customers.

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. (Yonhap)

KIm Jung-mi  edt@koreapost.com

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