Some of the biggest names in Korean business, including units of the Samsung and Lotte conglomerates, scrambled to win one of just three new licences available last year. The winners opened outlets in downtown Seoul targeting tourists, mainly from China, who drove duty-free revenue 11 percent higher in 2015.
Last week, Samsung's Hotel Shilla joint venture formally opened a gleaming store boasting floorspace the size of the capital's Olympic baseball stadium. The company's original internal sales target for the store this year was 1 trillion won ($867 million), a store spokesman said, but the official target now stands at 500-600 billion won.
With other new store operators making similar revisions, the government plans "to lessen uncertainty in the market" with new measures to be announced Thursday, a finance ministry official told Reuters. Some in the industry, though, say they fear that could mean Seoul plans even more store licences.
Chinese visitors, while rising in number, are spending less per person, and increasingly favour Korean brands with lower price tags.
Evolving spending habits, as well as uncertainty over the government's intentions, have made luxury powerhouses such as LVMH's Louis Vuitton wary of setting up a presence inside the growing numbers of duty-free outlets. That's a dual blow for store operators: the brands act as a magnet for other high-end labels as well as shoppers.
"We are running everywhere trying to make it work," said Jung Ki-youn, an official at Hanatour Service Inc, owner of a new duty-free outlet in a tourist-heavy Seoul district that is generating just a tenth of expected revenue. "Allowing more stores would be nonsense," said Jung.
The government's new plans will "focus on the problem of short licence periods and difficulty of renewal," the finance ministry official said, speaking on condition of anonymity.
CONSUMERS VOLATILE
South Korea overtook Britain in 2010 to become the world's biggest duty-free market, with more than half of sales from downtown Seoul stores rather than airport outlets. Revenue rose 11 percent to just under $8 billion in 2015, and analysts expect it to grow about 14 percent this year to $9 billion.
But analysts cite the absence - thus far - of anchor brands in the new stores as contributing to the slow start. Hotel Shilla's joint venture store is still in talks to bring in top luxury brands such as Louis Vuitton, Chanel and Hermes , a person with direct knowledge told Reuters.
A source close to LVMH said, "The problem is that this market is very driven by the Chinese consumer who, as we have seen in places such as Hong Kong, is very volatile, and will swiftly go somewhere else depending on currency swings or security issues."
"Therefore, for now, it is very much wait-and-see for big luxury brands but I would think they will have to make their position clear relatively soon," the person said.
Alongside the Hotel Shilla joint venture and Hanatour Service's SM Duty Free outlet, Hanwha Galleria Timeworld won the last new store licence up for grabs last July.
But shares which soared when the trio won the licences have since tumbled as doubts over the stores' prospects emerged: From their 2015 peaks, Hotel Shilla shares have dropped 53 percent, Hanwha Galleria Timeworld stock is off 71 percent and Hanatour has lost 58 percent.
More worryingly for investors, competition could intensify if Seoul does grant new store licences.
Last November, the government didn't renew licences held by Lotte Duty Free and SK Networks due to expire by this summer. But industry executives believe Seoul may grant a reprieve when it announces new industry measures.
"Mid- to long-term, strong duty-free operators will have a more stable environment to operate in as the government is expected to lengthen duty-free licenses from five to 10 years," said Kim Ji-hyo, an analyst at Eugene Investment & Securities.
"But in the meantime, it will be messy." ($1 = 1,153.4000 won)