Lotte duty-free ambitions hinge on S.Korea store licence

Hotel Shilla

14/12/2016 23:19

* Lotte's 2nd-largest store hopes to regain lost licence 
    * World's No. 3 duty-free operator after Dufry, DFS 
    * S.Korea world's largest duty-free market at $7.9 bln in 
2015 
 
    By Joyce Lee 
    SEOUL, Dec 15 (Reuters) - Five bidders covet three lucrative 
downtown duty free licences to be issued by South Korea on 
Saturday, and arguably none is more desperate for a win than 
Lotte Duty Free. 
    The world's No.3 duty-free retailer's ambitions to one day 
become the world's biggest operator were thwarted this year by a 
criminal investigation that forced its parent Lotte Group to 
scrap a multi-billion-dollar IPO.  urn:newsml:reuters.com:*:nL4N1CV1DX 
    A win on Saturday would allow the beleaguered South Korean 
conglomerate to reopen a Seoul mega-store and revive its goal of 
global duty-free dominance.  
    Failure would not only keep the store shuttered, it would 
curb enthusiasm for the planned $4.5 billion initial public 
offering of Lotte Group's hotel business, designed in part to 
help fund expansion in duty free.  
    "If Lotte is chosen, it's expected to have a positive 
influence on Hotel Lotte's planned IPO, which is the centrepiece 
of Lotte Group's announced target of turning into a holding 
company structure," said Yang Ji-hye, retail analyst for Meritz 
Securities. 
    South Korea's customs agency will decide the winners of 
three new duty-free licences for large companies in Seoul on 
Saturday, adding new stores to the world's largest duty-free 
market worth $7.9 billion last year. 
    Other participants in the auction include Samsung Group's 
Hotel Shilla Co Ltd  008770.KS  joint venture, Shinsegae Inc 
 004170.KS , Hyundai Department Store Co Ltd  069960.KS  and SK 
Networks Co Ltd  001740.KS . 
    South Korea's fifth-largest business group, Lotte has 
invested a huge amount of energy in regaining the licence that 
it failed to renew six months ago, around the time that 
prosecutors revealed they were investigating the group. 
    Group Chairman Shin Dong-bin, his father and 20 other 
current and former officials now face charges including 
embezzlement and breach of trust in one of the highest-profile 
investigations of a South Korea company's dealings in recent 
years. 
    Shin, who denies any wrongdoing, unveiled a major 
restructuring of the conglomerate in October to boost confidence 
among consumers and potential investors. 
    But the scandal had already derailed the hotel IPO just as 
money was draining out of the duty-free business. Lotte has bled 
3 billion won ($2.6 million) a month since July to manage the 
now-empty Lotte World Tower store, which is about twice the size 
of a football pitch and once boasted about 700 brands including 
Louis Vuitton, Chanel and Hermes. 
    The closed store generated 611 billion won in revenue last 
year, about half the revenue raised by the vast mall surrounding 
the group's new Lotte World Tower skyscraper in Jamsil, 
southeastern Seoul, Lotte Duty Free says. 
    The store is key to the group's ambition to become the 
world's biggest duty-free operator. Lotte Duty Free, with 3.75 
billion euros turnover in 2015, is currently ranked third 
globally following Dufry and second-ranked DFS Group, a unit of 
LVMH  LVMH.PA . 
    "We can reopen the store within a month because the space 
has been left open. All we have to do is shift the merchandise 
from our other locations," a Lotte Duty Free spokesman said.  
    South Korea overtook the United Kingdom as the world's 
largest duty-free market in 2010, and has seen duty-free sales 
nearly double in the past four years to 9.2 trillion won in 
2015. 
     
    ($1 = 1,163.3000 won) 
 
 (Reporting by Joyce Lee; Editing by Miyoung Kim and Stephen 
Coates) 
 ((jungyoon.lee@thomsonreuters.com; +82 2 3704 5609; Reuters 
Messaging: jungyoon.lee.thomsonreuters.com@reuters.net)) 
 
Keywords: SOUTHKOREA DUTYFREE/LOTTE