As new duty-free shops are scheduled to be opened early next year, there is little time for preparation…Korea Customs Service and Korea Duty Free Association urgently need to find ways to develop the manpower market.
The South Korean duty-free industry is eager to get the new licenses for downtown duty-free shops, which will be available in 15 years. As there is not enough manpower to meet the demands for workers considering the huge floor space of the new duty-free shops, however, a ‘severe shortage of duty-free workers’ is feared.
The South Korean government announced last February that it would add large-scale downtown duty-free shops in 4 areas in Seoul and Jeju with a view to invigorating the duty-free industry. Considering the characteristics of the duty-free industry, i.e. it costs a lot of money to decorate the interior and secure inventories, large new investments are expected to be made in the industry. Accordingly, it is forecast that about 4,000 new jobs will be created: professionals in ‘business management,’ ‘sale,’ ‘packing,’ ‘inventory management’ and ‘logistics management.’
A Korea Customs Service insider said, “As the government is trying to open downtown duty-free shops that are competitive in the global market, the industry is expected to bid for licenses to establish and operate larger duty-free shops than previously, and it will eventually create new jobs.”
Those companies bidding for the licenses are competitively announcing that they would like to secure as large a site as possible until the deadline for license applications. All four new licenses are highly likely to be awarded to a company that secures the largest site.
However, industry insiders are worried about the chronic difficulties in manpower supply and demand, such as the ‘high turnover rate,’ the ‘shortage of professional manpower’ with regard to the sale and management of duty-free commodities and ‘difficulty of communicating with foreign customers.’ No matter which company obtains the licenses to establish and operate duty-free shops, it cannot be denied that it will have to face a big hump, i.e. ‘shortage of professional manpower.’
Behind attraction of new investments and creation of new jobs
lie problems like ‘a high turnover rate’ and ‘shortage of professional manpower.’
The duty-free industry says they suffer from a chronic difficulty in manpower supply and demand.
Currently the downtown duty-free shops in Seoul and Jeju hire about 10,000 workers. The manpower pool needs to be increased by at least 81%.
The total area of the duty-free shops operated by Lotte, which has the largest number of duty-free shops in Seoul, is 29,861㎡ (9,033 pyeong), followed by Shilla’s 9,332㎡ (2,823 pyeong), SK Walkerhill’s 7,557㎡ (2,286 pyeong) and Dongwha’s 6,460㎡ (1,954 pyeong). According to the ‘Expected Benefits of Additional Downtown Duty-free Shops’ announced by Korea Customs Service last January, about 0.15 person is hired per 1㎡ of floor space (based on 10 downtown duty-free shops as of 2013), i.e. about 0.5 person is working per 1 pyeong.
Judging from the total area of the 6 downtown duty-free shops in Seoul, i.e. about 53,210㎡ (16,096 pyeong), it can be concluded that about 8,048 persons are working in the downtown duty-free shops in Seoul. The estimated number of people working in the downtown duty-free shops operated by Lotte and Shilla in Jeju with a total area of 12,205㎡ (3,692 pyeong), i.e. 1,846 persons, was calculated likewise. It roughly tallies with the total number of people working in downtown duty-free shops in the country, estimated by the industry in 2014, i.e. 10,193 persons. It is possible to estimate the minimum manpower requirement for the new downtown duty-free shops after the announcement of the bid for the new licenses to establish and operate downtown duty-free shops in July or August.
If so, there will be several possible scenarios depending on the projected site announced by those companies preparing to apply for the new licenses by the June 1 deadline. For starters, we formulated a scenario with focus on companies that made specific proposals for two licenses to be awarded to large corporations.
1. Large corporation A & Large corporation B + SME A Case
If large corporation A, which proposed the largest area, i.e. 18,180㎡ (5,499 pyeong), and large corporation B, which proposed the second largest area, i.e. 15,180㎡ (4,591 pyeong), are selected, the estimated manpower requirement will be 6,542 persons (2,749 persons for large corporation A+ 2,295 persons for large corporation B + 1,497 persons for SME A). About 81% more manpower will be required.2. Large corporation C & Large corporation A + SME A Case
If large corporation C, which is in an advantageous position in the selection process as it secured 12,000㎡ (about 3,600 pyeong), and large corporation A are selected at the same time, the total manpower requirement will be 6,046 persons (1,800 persons for large corporation C + 2,749 persons for large corporation A + 1,497 persons for SME A). About 75% more manpower will be required.3. Large corporation D & Large corporation E + SME A Case
Large corporation D, which announced the smallest area, i.e. 9,900㎡ (2,994 pyeong), but spooked the industry as it recently had a high rate of return at the Jeju International Airport, cannot be ignored. On top of that, as large corporation E is planning to transform two stories in its department store into duty-free shops, the size of its site is estimated to be about 10,578m² (3,199 pyeong. 2/10 of the total area of the department store 52,892m²). The total estimated manpower requirement will be 3,096 persons (1,497 persons for large corporation D + 1,599 persons for large corporation E). If the SME is included, the total manpower requirement will be increased to 4,593 persons. At least 57% more manpower will be required.
Making matter worse, the estimated numbers are based only on the three new downtown duty-free shops in Seoul. Considering a high turnover of employees in downtown duty-free shops in Jeju and a new license being awarded in Jeju too, at least hundreds and up to about 1,000 new duty-free shop workers will be required in Jeju alone. Especially considering that Lotte is moving from Seogwipo to downtown Jeju (a bigger store) on June 19, and has difficulty hiring 400~430 new hands it needs right away, the shortage of processional manpower likely to take place sometime this year or at the end of this year cannot be avoided due to the structural problem of the industry.
8,048 persons for the current area of 53,210m². If new licenses are awarded, however, at least 57% more and up to 81% more manpower will be required. Both existing and new duty-free shops cannot be free from manpower shortage.
The “notification regarding the operation of duty-free shops (revised on January 27, 2015)” stipulates that companies that obtain licenses should start business within 6 months. Regardless of what the reason may be, if the licenses to establish and operate duty-free shops are awarded in July or August, those companies which obtain the licenses must start business as early as at the beginning of next year. Even though they obtain the licenses, if they cannot take care of the manpower shortage, it is certain that no one can rest assured on the chronic manpower issue.
Even if they manage to hire enough people, their job performance cannot be guaranteed.
However, companies suffering from the chronic shortage of professional manpower and industry insiders are clueless as to where they can find 10,000 or so new duty-free shop workers. It is attributed to the fact that duty-free shops have much more stringent hiring conditions than the general distribution industry including department stores. As duty-free shops sell bonded goods exempt from customs duties, duty-free shop workers must be well-informed of the Korea Customs Act when they sell goods. They must also be knowledgeable about the regulations and procedures related to airports and ports. Furthermore, all bonded goods are managed and supervised by customs offices in principle, and bonded goods should not be brought into Korea according to the regulations, and duty-free shop workers must have expert knowledge about bonded goods taken out of the country. They are also required to have much knowledge when they handle customer information, and be able to communicate efficiently with both Korean citizens and foreigners.
“As it is difficult to hire Korean nationals proficient in Chinese, more than half of the people working in duty-free shops are ethnic Koreans with Chinese citizenship,” said an industry insider. “As they are poor at Korean, there are difficulties teaching them the Korea Customs Act and work procedures, and complaints from Korean customers are increasing due to their friction with Koreans.” As employees must be proficient in foreign languages and knowledgeable about the Korea Customs Act, the industry prefers experienced workers, but is suffering from a high turnover rate and problems with management of temporary workers. As a matter of fact, only 3%~6% of workers in sales, MD, marketing and customer support are in management positions at duty-free shops. Hence systematic staff management is difficult.
Despite this situation, the industry is simply emphasizing ‘size,’ ‘location,’ ‘management capabilities,’ ‘features’ and ‘strengths,’ but ‘manpower supply and demand’ is not mentioned. About this the duty-free industry is not making any official statement except that “We are internally thinking to recruit more people.” Also, some companies said, “As most of the duty-free shop workers are managed by branded companies and temporary work agencies, it is difficult to manage them.”
Accordingly, in July or August when the licenses for these new downtown duty-free shops are awarded, it seems that the duty-free industry will immediately start a recruiting war. It is forecast that the duty-free industry cannot but headhunt experience workers who are currently working in duty-free shops to hire people for the new duty-free shops. If this headhunting becomes a reality to fill the vacant positions, the duty-free shops and tenants cannot but raise wages and improve welfare benefits to prevent staff turnover. “As it was exaggerated as the goose laying the golden eggs, the competition is tough. It is attractive, all right, but the duty-free shop is a hassle with a lot of difficulties,” said a disgruntled industry insider.
Relevant agencies must find a solution to the manpower issue for themselves…
The manpower issue cannot be seen simply as manpower shortage. To bring necessary manpower, there must be a carrot. The carrot may be higher wages, better welfare benefits and promotion to a higher rank or position. This is why the duty-free industry is expected to take a huge blow, i.e. higher wages. The increased expenses, including the higher wages for duty-free shop workers, due to manpower shortage is also expected to deal a blow to the rate of return of the whole industry. An industry brand insider said, “As of now, the labor cost is past the threshold as compared to the yield of duty-free shops. Due to various factors, including external factors like higher labor costs and requests for higher prices of branded products due to fluctuations in exchange rates, profitability is further deteriorating and it is difficult to guarantee the quality of service. The duty-free industry has an uncertain future.”
Manpower shortage will result in higher wages.
Even if the size of the duty-free industry grows, it is feared that profitability will go down…
Relevant agencies like Korea Customs Service and Korea Duty-Free Association must work harder to foster professional manpower for the duty-free industry.
After all, Korea Customs Service is urgently needed to take interest in the manpower issue as well as in license screening. Furthermore, “Subparagraph 4 of Paragraph 1 of Article 5-5 of the Notification Regarding the Operation of Duty-Free Shops” stipulates that conference organizations for duty-free shops should be able to ‘engage in educational business for fostering duty-free shop workers.’ This is why Korea Duty-Free Association, which was established to contribute to invigoration of the Korean duty-free industry and enhance employment, should concentrate more on the manpower issue. Nobody else will pay attention to or solve the problem that the principal agents of the industry are not taking any action to solve.
It is now that Korea Customs Service, which screens licenses, and Korea Duty-Free Association should take the lead in fostering professional duty-free shop manpower. Screening the licenses is important, but it is very urgent to come up with solutions to the problems likely to surface after the licenses to establish and operate duty-free shops are awarded.
