SEOUL, July 3 (Reuters) - An affiliate of South Korean conglomerate Hanwha Group on Monday said it will close one of its two duty free stores at the end of August, signalling a change in fortune for the once lucrative sector as diplomatic tension brings a drop in Chinese tourists.
Chinese visitors to South Korea fell 64 percent in May from a year earlier, declining for a third consecutive month after Beijing stopped travel agencies selling trips to its neighbour following Seoul's decision to deploy a U.S. missile defence.
China objected to the Terminal High Altitude Area Defense (THAAD) system, saying its radar could penetrate Chinese territory and undermine regional security.
Hanwha Galleria Timeworld Co Ltd will close its money-losing store in Jeju airport on Aug. 31, just four years after it opened to tap then-strong demand from Chinese tourists.
The closure comes after store revenue tumbled 80 percent in April-May from the same period a year earlier, spokesman Min Kyung-kook said.
"The sales suspension is expected to decrease revenue, but to have a positive impact on improving profitability," the company said in a stock-exchange filing.
South Korea overtook Britain in 2010 to become the world's biggest duty free market, but the diplomatic spat and rising competition have hit the industry hard.
An official at the Korea Customs Service said the closure came only three months after Hyundai Paint Co Ltd's Duty Free One closed in Busan Port International Passenger Terminal.
Last month, market leader Lotte Duty Free said 40 senior officials have offered to return 10 percent of annual pay to cut costs, expecting a "prolonged crisis". (Reporting by Haejin Choi and Hyunjoo Jin; Editing by Christopher Cushing)