SOUTH KOREA: SM DUTY FREE
SM Duty Free wins new business at Incheon, but struggles downtown
It is fair to say that SM Duty Free’s fortunes have been mixed in the last two years, with the SME operator winning new business on the one hand, but also trying to mitigate losses at its downtown shop in Seoul on the other. David Hayes reports.
business for SM Duty Free at Incheon Airport and accounts for about 40% of sales, which have been boosted recently by e-cigarette products “E-cigarettes are leading the
market; Philip Morris’ Iqos and KT&G’s Lil are leading the e-tobacco market here,” an SM Duty Free source tells TRBusiness. Liquor represents 10% of SM’s
Incheon Airport sales and the rest are made up by cosmetics and fashion. Outside of the airport, SM Duty
Above: SM Duty Free's existing store at Incheon Airport in T1.
Below right: SM Duty Free’s downtown store in Seoul which the company has downsized.
I
n the last couple of years, whilst SM Duty Free has won two new licenses to expand retail
operations at Incheon International Airport, its downtown Seoul duty free shop has underperformed, owing to China’s ban on group tours to South Korea in retaliation over the THAAD missile system crisis. But for the moment at least, SM
Duty Free is hoping its Incheon Airport operations can drive revenue growth this year. In addition to its existing departure
duty free shops in T1 and T2, the company was recently awarded a license to operate two duty free arrivals shops in T1 which will occupy a combined 380sq m. Due to open on 31 May, along
with another arrivals shop in T2 to be operated by Entas Duty Free, both operators have five-year contracts with the possibility of extending for another five years.
Outside of the airport, SM Duty Free reveals that it has downsized its Seoul downtown store over the past 15 months in order to curb its losses suffered as a direct result of the sharp reduction in Chinese group tour customers.
TRBusiness 104 TRBUSINESS
SM Duty Free tells TRBusiness that it is likely to see first-year sales reach about KRW70bn (US$61m) in its two T1 arrival shops, according to IIAC forecasts, with the shops selling international and Korean cosmetics, imported liquor and traditional red ginseng products. In line with IIAC and government
requirements, locally-made South Korean products must account for at least 20% of all goods sold in the arrival stores, but tobacco and fresh food products are not permitted. It is understood that the arrivals
license includes a provision for the company to open two more arrival shops in the T1 baggage hall, if approved by IIAC. Approval will depend on the
success of its first two arrival shops during the initial six-month trial period.
E-cigarettes boost sales With the two new shops, SM Duty Free is hoping to boost the revenue of its total business, which reached roughly US$90m in 2018. However, sales in T1 fell 12% last year to about $60m after Korean Air transferred its flights from T1 to the new T2 in January of that same year. Tobacco generates a great deal of
Free reveals that it has downsized its Seoul downtown store over the past 15 months in order to curb its losses suffered as a direct result of the sharp reduction in Chinese group tour customers. This follows the widely- reported ban issued by the Chinese Government on group tours to South Korea in retaliation over the THAAD missile defence system crisis. “SM Duty Free last year decreased
its downtown store from six floors to three floors,” says the source. “It closed the basement floor shop area and stopped using floors four and five, leaving the first, second and third floors. “Most luxury fashion brands left
the store including Coach, Bally, Michael Kors, Etro, Paul & Shark, and others; also, Dior cosmetics left in October. Then in January this year the street level first floor closed.” International cosmetics brands
and high-end South Korean brands are now grouped on the downtown store’s second floor including Estée Lauder, Amore Pacific, LG and some others. «
MAY 2019
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