TOP 5 ASIAN OPERATORS: LOTTE DUTY FREE Unlock the full potential...
Lotte overseas promise a welcome distraction from domestic troubles
Lotte Duty Free’s ‘record-low’ $2.4m operating profit in 2017 has not distracted it from growing the overseas business, particularly in Japan. Luke Barras-Hill reports.
Above: A beauty assortment at Lotte Duty Free’s COEX store.
T
he past 12 months have been one of Lotte Duty Free’s most challenging on record.
China’s stranglehold on Chinese This content is for subscribers only.
group tours to South Korea in 2017 due to the enduring THAAD missile dispute between the countries, coupled with heavy trading losses and unsustainable fees at Incheon International Airport has immeasurably challenged South Korea’s leading travel retailer. This culminated in ‘record-low’
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operating profits of KRW2.5bn ($2.4m) on sales of $5.2bn last year. (reportedly excluding its Busan downtown and airport businesses). “With the THAAD crisis,
Chinese tourists have lost interest and operating profit has hit a record low due to increased rent and concession fees at Incheon
“With the THAAD crisis, Chinese tourists have lost interest and operating profit has hit a record low due to increased rent and concession fees at Incheon International Airport.”
Lotte full-year results statement 40 TRBUSINESS
+1,254% compared to what it paid in 2016. “The current method of calculating
concession fees based on sales has the problem that even if operating profit decreases, concession fees increase as sales grow,” the results statement read. It adds that the government is
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reviewing this issue in a review of the duty free system, the results of which are due to be released later this year.
Incheon non-L&T exit In February, Lotte resigned three of its four licences – excluding liquor and tobacco – at Incheon International Airport T1.
reached KRW1tn ($940m) in 2017, rental payments amounted to just over half that at KRW580bn ($545m). Its concession fees also rose by
International Airport,” Lotte said in a results statement. Lotte stated at the time it issued
its earnings statement in April that monthly rental fees at Incheon had risen by 55% from KRW40bn ($37m) in year two [the second in a five-year contract] to KRW62bn ($58m) beginning September last year. Tellingly, while its airport sales
As reported, the withdrawal of its perfumes and cosmetics (DF1), leathergoods and fashion (DF5) and all goods (DF8) concessions boiled down to ‘burdening rent increases’ across the five-year concessions, won in 2015. Lotte had already emphasised
directly to TRBusiness the influence THAAD had as the ‘most influential reason’ for its pullout at T1, which will formally occur on 7 July. The exit date is 120 days from the
point of termination. The effect of high rents coupled
with the issuing of new downtown duty free licences and plunging Chinese tour group numbers to South Korea owing to the THAAD missile dispute, has seemingly created an untenable situation for the group to continue trading. TRBusiness
also reliably
understands that Lotte had to pay a concession penalty fee of approximately KRW187bn ($174m) for ending the contract early, but this is a relatively small price compared to what it says would have been estimated future losses. Lotte had been clear at the time its withdrawal became known in
MAY 2018
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