TOP 5 ASIAN OPERATORS: LOTTE DUTY FREE
Lotte had to pay a concession penalty fee of approximately KRW187bn ($174m) for ending the T1 contract early, but this is a relatively small price compared to what it says would have been estimated future losses.
TRBusiness Unlock the full potential... “Although we welcome the recent
positive news, we have to wait and see if the backlash will actually be relieved. “Judging by the precedents,
there might be extra conditions to be added so it is not advisable to be optimistic yet.” For now, the picture for Chinese
the stationing of the US-supplied Terminal High Altitude Area Defense System on South Korean soil. However, TRBusiness retail sources
have indicated more recently that any short term resolution of the dispute, leading in turn to an immediate resumption of business that has resulted in Chinese tourist arrivals cascading by as much as 70% during certain months in 2017, appear premature. This caution has become more
acute in recent months, particularly in light of the news that China is set to lift economic restrictions on South Korean companies in place due to THAAD. Last month, Chinese state
Counsellor Yang Jiechi pointed to ‘tangible results in the near future’ during a meeting with South Korea’s President Moon Jae-in, who requested that China put an end to its ‘retaliatory’ tactics for THAAD’s deployment in the country. “We hope the situation improves,
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however there is no noticeable sign of normalisation,” states Lotte Duty Free PR Manager Sangsub Park when asked by TRBusiness if he saw a resolution in sight.
attract more Southeast Asian and other regional nationals to offset its reliance on Chinese customers. Currently operating in Tokyo’s
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www.trbusiness.com/subscriptions Lotte World Tower Korean food outlet. 42 TRBUSINESS
arrivals remains relatively bleak. According to February data from
the Korea Tourism Organization, Chinese arrivals to Korea dropped 41.5% to 345,341 compared to 590,790 in the same period in the previous year. Nonetheless, this does represent
an improvement from the months of April to July 2017, for example, when the decreases were as high as -69.3%. “The group tours are still banned,
meaning the group-tour packages are not being sold and flights are not being chartered to prepare for them,” a Lotte Duty Free spokesperson tells TRBusiness. “We just hope to see ‘tangible results’ soon which will normalise the industry.” This expectation of a revival in
trade was certainly alluded to in Lotte’s 2017 results.
Overseas sales +45% As mentioned, a standout quality in what was otherwise a turbulent year was Lotte’s seemingly blossoming overseas business, notably in Japan. This feeds into a wider strategy to
downtown Ginza district and at Kansai International Airport, Lotte is also present in Jakarta, Indonesia, Bangkok, Nha Trang and Da Nang in Vietnam and Guam. [In the case of the last, a Guam Superior Court ruling earlier this year voided and set aside Lotte’s contract at A.B Won Pat International Airport, a decision Guam International Airport Authority has appealed against as part of a long-running legal dispute with DFS Group that challenges the award of Lotte’s concession in 2012 - Ed]. Overseas sales grew by 45% year-
on-year to total KRW140bn ($131m) in 2017. “Lotte Duty Free had a satisfying
year in global duty free in 2017,” says Park. The result was spearheaded by
Vietnam Da Nang Airport, which recorded a surplus in its first year of trading. Meanwhile, Tokyo Ginza grew its
business by a ‘remarkable’ +150% year-on-year. “We believe [a] localisation
strategy was central to the sales growth, taking account of the characteristics of Japanese retail where tax free shopping is more prevalent,” comments Park. “Tokyo Ginza is also offering tax
free shopping. Hosting popular Japanese cosmetics and medications was also crucial.” Lotte has long signalled its
intention to capitalise on Vietnam’s growing tourism trade and has backed that up by acquiring the exclusive duty free operating rights at Cam Ranh International Airport in Nha Trang. The 10-year lease covers 1,811sq m
at the new terminal and began earlier this year, with Lotte Duty Free Shop CEO Jang Seon-Wook promising differentiated services and ‘active entry’ to establish the retailer as a ‘duty free brand’ in Vietnam. Categories span perfume &
cosmetics, watches, fashion and liquor in a 1,637sq m departure hall duty free space. Lotte is targeting sales of
KRW$700bn ($658m) over the duration of the contract, supported by the construction of a new two- storey terminal that expects to increase passenger capacity from two million to eight million.
MAY 2018
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