LEADING ASIA PACIFIC OPERATORS: LOTTE DUTY FREE
2019 figures courtesy of the Korea Tourism Organization. However, the path to recovery
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Duty Free engine. The January unveiling of eight
has been a protracted one since the summit to normalise relations between both countries took place in Vietnam in November 2017. Diplomatic pressure between both
countries reached boiling point that year, with a 70% plunge in Chinese tourists to South Korea recorded in August before the leaders met. Lotte Duty Free reported record-
low operating profits (excluding its Busan downtown and airports businesses) of KRW2.5bn ($2.4m) on sales of KRW5.2tn ($5.2bn) in 2017.
Too little too late at Incheon Indeed, Chinese tourist numbers only began to revive in March 2018 (+11%) and gradually strengthened thereafter. Unfortunately, it was too little too
late for the company’s loss-making concessions at Incheon Airport Terminal 1, resulting in it exiting three of its four contracts (excluding liquor & tobacco) in February 2018. That decision was hastened due
to the burden of rent increases, the THAAD hit on Chinese tourist volumes and the extension of new downtown store licences in Seoul. As reported, Incheon International
Airport Corporation (IIAC) amalgamated Lotte Duty Free’s former perfumes & cosmetics lot (DF1) with all items (DF8), leaving fashion and leathergoods (DF5) as a standalone concession. These were subsequently won by Shinsegae Duty Free. Conversations with Korean duty
stores over a total of 1,407sq m at Incheon Airport Terminal 2 certainly buoyed its half-year results, with sales lifting 29% to KRW2.7tn. Lotte Duty Free won the Liquor,
Tobacco and Packaged Foods (DF2) concessions in a tender the year prior, with competitor The Shilla Duty Free snapping up Liquor, Tobacco and Packaged Foods (DF1). The improvements played through
into its nine-month 2018 results, with sales rising by 25% to KRW4.16tn ($3.7bn). The phenomenon of Chinese
daigou ‘shuttle trader’ sales has also had a very positive affect on revenues – although this situation could change [see panel on p39] in the coming months/year. Meanwhile, sales from foreign
customers, notably those from Taiwan, Hong Kong, Vietnam, Indonesia and Malaysia, fed income. That aside – and as reported in the
TRBusiness Top 10 Operators report – Lotte Duty Free’s aggressive approach to domestic marketing has proved a lucrative fillip in capturing downtown and online consumers. Sales from this medium exploded
by 50% in 2018 year-on-year to reach KRW2tn and now accounts for 25% of the overall business. “Lotte Duty Free’s online sales
growth for the last three years (2015- 2018) was +32% on average, which
Kap Lee, Lotte Duty Free
is way higher than its offline sales growth of +15%,” comments Lee. “If we assume that it continues
consistently to be on an upward trajectory, it will be able to exceed a 30% share of our total sales after five years.” It’s online presence has also
become more sophisticated, offering more than simply discounts and promotions. Since September, its online shop
incorporates traditional Chinese language characters and now supports four languages – Korean, English, Japanese and Chinese (both simplified and traditional) with more developments in the pipeline.
M&A’s ‘a great option’ Notwithstanding these gains, it is Lotte Duty Free’s overseas business that continues to attract serious attention. In the Annual Global Industry
Survey, Lotte Duty Free revealed sales from its overseas branches jumped by 168% year-on-year to reach KRW282m ($252m), shattering its previous
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free sources in the past six months reveal the acceleration in Chinese tourist numbers has not had an instantaneous impact on sales, with many remaining cautious on the situation. “The market conditions have not
yet returned to pre-THAAD levels,” confirms Lee. “However, Lotte Duty Free has been doing its best to adapt to market conditions and generate maximum sales and operating profits – this has come to fruition so far.” Despite the challenges, the
strong financials recorded in 2018 stand testament to a number of very efficient pistons in the Lotte
MAY 2019
To receive a full digital copy of the May issue, plus 12 monthly print editions and the critically acclaimed TRBusiness Top 10 International Operators Report, please visit
www.trbusiness.com/subscriptions The Star Lounge at the Myeongdong Main Store. TRBUSINESS 37
“Lotte Duty Free’s online sales growth for the last three years (2015-2018) was +32% on average, which is way higher than its offline sales growth of +15%.”
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