S.Korea to issue four more downtown Seoul duty-free licences

South Korea, the world's largest duty-free market, will grant four more duty-free store licences in downtown Seoul, the customs agency said on Friday, banking on strong Chinese tourist demand to overcome concern of oversupply among some operators.

The popularity of South Korean products such as cosmetics among Chinese travellers has helped the country's duty free market regain momentum following a dip last year after a deadly outbreak of Middle East Respiratory Syndrome (MERS).

South Korea's duty free market generated a record 2.7 trillion won ($2.37 billion) in sales in January-March, up 21 percent from a year earlier, the agency said.

Meanwhile, Chinese tourist arrivals to the country rose 17 percent in the period, according to HSBC research, recovering from a decline in June-August during the MERS outbreak.

Last year the government awarded three Seoul city duty free licences, but the stores have gotten off to a slow start and have struggled to attract anchor luxury brands.

"The operational conditions for duty free stores are daily becoming more difficult, as additional stores compete to secure brands and visitors," Hanwha Galleria Timeworld Co Ltd , one of the new operators, said in a statement.

"It is regrettable that the situation of the five new operators doesn't appear to have been taken into consideration," it said of the latest plan, referring to the winners of the three licences as well as two stores taking over expiring licences from existing operators.

Of the four licenses to be issued in Seoul this year, large companies such as Lotte Duty Free, the world's third-biggest duty free operator, will be able to compete for three of them, while one will be reserved for a smaller operator, Korea Customs Service said at a briefing.

The government said it will begin a six-month process to pick new operators starting late May or early June.

Lotte's second-largest duty free shop made about 611 billion won in 2015 sales but its licence expires at the end of June. Whether it can continue operating will have a bearing on parent Hotel Lotte Co Ltd's planned summer stock listing, analysts said.

Last November, the government did not renew licences held by Lotte and SK Networks Co Ltd that expire in June and May respectively, instead giving them to relative newcomers Shinsegae Co Ltd and Doosan Co Ltd.

The decision to add four more will take the number of downtown Seoul duty free stores to 13 by the end of 2016 from six a year earlier.

$1 = 1,139.5800 won