Parent Company Hana Tour Announces Suspension of Operations on 25th
Hana Tour Faces Main Business Slump and Subsidiaries Also Blocked from Funding
Reallocation of Frontline Sales Staff Unavoidable... Impact on Dispatched Employees
SMEs and Large Duty-Free Shops Say "Rent Burden Is Too Heavy"
[Asia Economy Reporter Cha Min-young] SM Duty Free, a subsidiary of Hana Tour and a mid-sized duty-free shop, has decided to cease its downtown Seoul duty-free business and return the related duty-free business license. This is the first case of returning a duty-free license due to the COVID-19 pandemic, raising concerns as other small and large duty-free shops are also struggling financially.
Hana Tour announced on the 25th through a public disclosure that its subsidiary SM Duty Free will stop operations at its Seoul branch and return the related duty-free business license. The business closure date is set for the end of September, with the suspension amount for the Seoul branch being 20.1 billion KRW.
The company explained that the main reason is the worsening business conditions caused by the COVID-19 pandemic. They plan to improve their profit and loss structure by cutting loss-making businesses. Accordingly, SM Duty Free will only operate two bonded sales stores within Incheon International Airport going forward.
As the parent company Hana Tour’s travel and tourism business was hit hard by COVID-19, its subsidiaries including SM Duty Free have also faced funding shortages one after another. Hana Tour also operates hotels, suffering widespread impacts. The Tmark Hotel Myeongdong, acquired by Hana Tour last September, has been temporarily closed from the 16th of this month until the 30th of next month.
Restructuring frontline sales staff at duty-free shops has inevitably affected Incheon International Airport as well. Currently, SM Duty Free prioritizes assigning its own sales employees to the Seoul downtown duty-free shop and outsources to specialized dispatch companies at the two duty-free shops in Incheon International Airport. If the Seoul downtown duty-free shop closes, existing employees will have to be relocated to Incheon International Airport. Contracts with outsourced dispatch companies will be terminated early.
Within the duty-free industry, there are concerns that the SM Duty Free situation will signal worsening business conditions. Although SM Duty Free is classified as a mid-sized duty-free shop because its parent company is the mid-sized enterprise Hana Tour, its actual scale is that of a small business duty-free shop. As a so-called "in-between" company, it was excluded from emergency rent reduction benefits for COVID-19 response. It also withdrew midway from the bidding for the bonded sales area at Terminal 1 of Incheon International Airport held earlier this year.
SM Duty Free, along with Grand Duty Free, Entas Duty Free, and City Duty Free, issued a joint statement expressing difficulties. They requested that rent be calculated based on operating rates excluding minimum guarantees until passenger demand recovers at Incheon Airport, to increase rent reduction or waive rent during duty-free shop closures. The rent-to-sales ratio for these four small and mid-sized companies at Incheon International Airport in March was on average about 252% or more based on Terminal 1. Large duty-free shops also saw their rent-to-sales ratio at Incheon Airport rise from the usual 60-70% to 120-150% in February. In terms of losses, large duty-free shops are suffering even more severely.
An SM Duty Free official said, "The decision was made at today’s board meeting because the duty-free business has become extremely difficult beyond a 'serious' level, and the parent company is also heavily affected by COVID-19," adding, "We plan to operate only the two duty-free shops within Incheon International Airport." Another representative of a small and medium-sized duty-free shop said, "There have been widespread rumors recently that SM Duty Free would completely exit the duty-free business as Hana Tour’s financial difficulties worsen," and added, "We also feel uncomfortable because the rent burden is too heavy, so it doesn’t feel like someone else’s problem."
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