SOUTH KOREA: SAMICK DUTY FREE


company, our store location is the best and many cosmetics groups want to put their products in our store,” remarks Kong. “But with about 240 sq m of retail


space it’s not easy to change to new brands; that’s our difficulty. Some of our shop’s small South Korean brands have changed but they are not so well known. “Best-selling items we sell


out of. Suppliers must focus on big operators, so we fall short on some items, but only best-selling products.”


IIAC rent negotiations Meanwhile, at the time of writing, Samick and the airport’s other T1 SME operators are continuing to negotiate with Incheon International Airport Corporation (IIAC) over the reduction in concession fees applied to compensate for decreased duty free sales. As mentioned, this relates to what


they claim has been a loss of custom from passengers flying with Korean Air and three other airlines that transferred to the newly opened T2 on January 18. IIAC has offered the same flat rate


27.9% concession discount to all T1 SMEs as well as conglomerate- owned operators, which The Shilla Duty Free recently accepted. Samick and other SME operators


who originally expected to receive a higher discount continue to negotiate with IIAC, claiming their loss is greater than the proportion of passengers transferring to T2 as their passengers have a higher than


Hopes for ‘stable’ H1


Samick Duty Free’s five-year T1 concession began in December 2015


and a number of the store’s cosmetics brands have decided to update their displays. “This year some existing brands will renovate their displays,” confirms Kong You Seon, Managing Director and CFO. “Dior did its display in February;


Sales in 2017 were estimated at $60m, with Samick DF expecting H1 2018 sales to remain stable.


MAY 2018


Biotherm and Kiehl’s both did theirs in April. Most brands think to renovate every five years.” Given current trading conditions, Kong expects first-half duty free sales in 2018 to remain stable, while second-half prospects appear brighter due to recent warming relations between North and South Korea, together with


South Korea’s [seemingly] improving diplomatic relations with China. “Maybe our business will be flat in


2018. In Q3 2018 we think the THAAD issue will be solved and then our sales will increase, but now no one knows,” Kong commented. “THAAD is not solved yet and


downtown operators face difficulties to operate. Incheon Airport shops are not so affected as 50% of customers are South Korean but downtown stores are more affected as they rely more on Chinese customers. We want visitors from China.”


TRBUSINESS 123


average spending profile. In addition, most SME operators


have lost more than the flat rate percentage that IIAC has used in its calculation (combining T1 main terminal and concourse). SME operators’ shops are located


in the T1 main terminal from where a higher proportion of passengers have transferred to T2. IIAC has told SMEs and others


that the 27.9% discount applied to their first half 2018 T1 concession fees, beginning on January 18 [T2 opening date] and running to 30 June, TRBusiness understands. IIAC will then recalculate the


concession discount on 27 July when full, first-half passenger traffic details are available. If outbound passenger traffic from


T1 is found to have fallen by more than the figures IIAC used to calculate the flat rate 27.9% concession discount, T1 operators will be entitled to an additional discount on their concession fee. Meanwhile, looking further


ahead, Kong notes that recent changes in government regulations governing retail staff working hours and minimum hourly wages will soon have an impact on SME and other operators’ wages bills in all South Korea’s duty free and other retail stores. Under new regulations passed by


South Korea’s National Assembly, the maximum working hours for retail sales staff have been reduced from 68 to 52 hours weekly. In addition, the minimum hourly rate for retail sales staff has been


“Since the THAAD issue started, some duty free operators have begun to rely on Chinese daigou trader customers. Now there is a lack of certain perfume and cosmetic items because of [daigou trader] purchases.”


Kong You Seon,


Managing Director and CFO, Samick Duty Free


raised to KRW 7,530 ($7.1) per hour for sales staff from 1 July, 2018. Kong adds: “This is the basic


guaranteed salary – how can we survive? For SME retailers with 50 to 299 staff the new working hours will begin the first week of January 2020.” «


Samick is able to generate larger margins on P&C than miscellaneous goods.


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