Hotel Shilla’s long-planned project to build a traditional Korean hanok hotel near a historic site in Seoul remains on hold, with no clear timeline for resuming construction. The company needs profits from its core duty-free business to move forward, but with no major improvement expected this year following last year’s downturn, the project remains in limbo.
The hanok project, which began in 2011, has been at a standstill for 14 years due to repeated setbacks, including the discovery of cultural artifacts, the COVID-19 pandemic, and ongoing struggles in the duty-free market.
According to industry sources on April 1, Shilla’s long-awaited project remains stalled due to sluggish duty-free sales, making it unlikely that construction will resume anytime soon. Last year, the company posted 3.95 trillion won ($2.7 billion) in revenue, a 10% increase from the previous year. However, ongoing struggles in the duty-free sector led to an operating loss of 5.2 billion won (3.5 million) and a net loss of 64 billion won ($43 million).
The hanok hotel has been a key project for CEO Lee Boo-jin since her appointment in 2011. Hotel Shilla initially planned to invest 300 billion won to build an authentic hanok-style hotel near its Jangchung-dong property in Seoul, adjacent to the Seoul City Wall (Hanyangdoseong). However, securing approval proved difficult. The company submitted its proposal to the Seoul Metropolitan Government in 2011, but the Urban Planning Committee rejected it twice. A revised plan was finally approved in 2016.
After years of delays, construction began in 2020 but was quickly halted after historical relics were found on-site. Just as Shilla prepared to restart the project, the pandemic hit, shutting down international travel.
An industry insider said, “Lee Boo-jin likely envisioned this project as a way to elevate Hotel Shilla further after taking office, but a series of unfortunate timing issues, starting with the approval process, have repeatedly set it back.” During this period, competitors Shinsegae and Lotte led the luxury hotel market with Josun Palace Seoul Gangnam and Signiel, respectively.
Even with travel picking up again, Hotel Shilla’s duty-free business has yet to recover. Since duty-free sales account for about 80% of the company’s revenue, resuming construction without a turnaround remains difficult. The company had long relied on Chinese daigou (personal shoppers), but China is now pushing to keep more of its duty-free spending within its borders.
At a recent shareholder meeting, Lee said, “We will focus on our core business and improve profitability through efficiency. By taking bold new steps, we aim to overcome challenges and set the stage for future growth.”
For the duty-free (Travel Retail) business, she outlined plans to bring in more exclusive brands and products while overhauling merchandising, marketing, and sales strategies. “We will restore profitability by streamlining operations and strengthening our financial structure,” she said.
With duty-free sales struggling to recover, Shilla is pivoting to an asset-light strategy, managing third-party hotels without major investment in land or construction. If this approach proves successful, it could improve cash flow and accelerate discussions on resuming the hanok hotel project.
