[THE INVESTOR] Lotte Duty Free, the nation’s No. 1 duty-free store operator, said on Aug. 16 it had posted its first operating loss in the second quarter in 14 years amid the ongoing diplomatic row between Korea and China over the THAAD deployment. 

The duty-free business unit of Hotel Lotte reported an operating loss of 29.7 billion won (US$26.1 million) during the April-June period, which compared to operating profits of 90.9 billion won a year ago. Revenue in the first half also declined 6.6 percent to 2.553 trillion won on-year.

The sluggish sales were largely due to a steep decline in Chinese tourists. According to industry data, the number of Chinese tourists has been cut almost in half since the Chinese government banned travel agencies from selling package tours to Korea since mid-March. The number of Chinese customers at local duty-free stores also plunged from 1.68 million in January to about 1 million in April. 

The THAAD row came at a time when Korean duty-free shops started investing heavily in overseas expansion especially to attract more Chinese customers.

Following the Korean government’s approval of four more duty-free shops last year, the number of duty-free stores in Seoul more than doubled to 13 from six in 2014.

Lotte, the largest, opened two new branches in Seoul in the first half of this year alone, spending 300 billion won. Last year, its flagship store in Myeong-dong, central Seoul, underwent a large-scale expansion work.

Other duty-free stores such as Shinsegae and Galleria have also suffered operating losses in recent months. Shilla Duty Free of Hotel Shilla, a Samsung affiliate, was the only one that managed to remain in the black thanks to cost-cutting efforts.

“Even when Chinese tourists come back, the heyday is over,” a Shinsegae official said on condition of anonymity. “There are too many duty-free shops in Seoul. Competition is getting fiercer and fiercer.”

By Park Ga-young (gypark@heraldcorp.com)