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No end in sight to South Korea’s waiting game...
News flash: South Korea’s duty free industry remains in the same situation it found itself in 12 months ago. At that time, TRBusiness was ruminating on Beijing’s reprisals against South Korean firms linked to the deployment of the US-supplied ‘Terminal High Altitude Area Defense’ system, or THAAD as it is more commonly known.
Juggernaut Lotte Duty Free was targeted for its sale of a golf course
to the South Korean government to facilitate the installation. Since then, Beijing has been relentless in pushing South Korean duty free and travel retail’s biggest pressure point. In starving operators of Chinese group tours – for so long one
of the most lucrative supply lines – it is suffocating a business that has the potential to rack up around $12bn this year (should all things go to plan). At Incheon Airport, Lotte has relinquished three of
its four concessions at T1 (excluding liquor and tobacco) due to unsustainable trading losses, linked heavily to the THAAD effect. At the time of writing [mid-April], IIAC remains locked in
negotiations with operators and SMEs such as Samick Duty Free at T1. These are aimed at reaching a satisfactory rental reduction arrangement that accounts for what concession partners claim is the aggravating impact of THAAD, coupled with (in some cases) a loss in ‘higher-spending’ visitors due to the shift of passenger traffic to the newly opened T2 where KLM, Air France, Delta and Korean Air are now based. It is understood that IIAC offered a uniform reduction package of
-27.9% to tenants at T1 to offset those woes. Shortly before press time, Shilla Duty Free accepted the offer, but only after it had watched Lotte pull out the majority of its shops. The dearth of Chinese visitors has also taken its toll on Seoul’s
competitive downtown business, which is set to welcome further stores from Shinsegae, Hyundai and City Plus this year following the granting of more licences under Korea Customs rules.
‘High-level talks’ For now, it seems diplomatic talks between Beijing and Seoul have reached an impasse. In the meantime, Chinese visitor numbers continue to deteriorate, posting a decline of around -40% in the first quarter, according to the Korea Tourism Organization. However, hopes for a normalisation in relations could yet
materialise. According to the Korean Times, ‘High-level’ economic discussions are expected to take place between both countries, which will put a strong focus on mending economic relations. Shortly before press, SME City Plus pulled its liquor, tobacco and
general merchandise concession from Seoul Gimpo Airport due to onerous contract fees, coupled with the THAAD effect. South Korea’s airport authorities will be hoping unfortunate
situations such as these cease for the benefit of the entire industry. Enjoy the issue.
Luke Barras-Hill, Acting Managing Editor MAY 2018 TRBUSINESS 13
DFS downtown excels in LVMH Q1 results
VMH Moët Hennessy Louis Vuitton’s Selective Retailing Division posted organic revenue growth of +9% in Q1 2018 spurred by an ‘excellent start’ to the year from DFS Group. Excluding the impact of DFS Group’s exit from Hong Kong
International Airport last year, organic revenue jumped to +16%, although revenue declined by 2% on a reported basis. LVMH Group revenue rose by 10% to €10.8bn (reported)
with organic growth yielding +13% (improving to +15% excluding the aforementioned impact of the Hong Kong Airport concession). Hong Kong and Macau T Galleria downtown locations performed
‘particularly well’, with an offering angled firmly towards the demands of international travellers. The results are encouraging given the move of DFS Group’s
downtown stores to fill the apparent ‘void’ left by the luxury retailer’s P&C concession loss to The Shilla Duty Free in Hong Kong. DFS reminded TRBusiness of the continued revival of the Hong
Kong downtown business during an interview in the Top 10 Operators Report in October. At that time, DFS billed downtown stores as ‘long-term
investments’, the positive results of which now seem to be showing more fully. Meanwhile, T Galleria outlets in Cambodia and Italy also
generated strong performances, LVMH added. Elsewhere, LVMH’s Sephora cosmetics brand continued to gain
market share in Q1, inaugurating a flagship outlet in the Saint-Lazare district of Paris as part of its new store concept rollout. “In the buoyant environment of the beginning of this year,
albeit marked by unfavorable exchange rates and geopolitical uncertainties, LVMH will continue to focus its efforts on developing its brands, maintaining strict control over costs and targeting its investments on the quality, excellence and innovation of its products and their distribution,” the statement added.
LEADER/NEWS
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