LEADING ASPAC OPERATORS: LOTTE DUTY FREE
for online purchases in departures and arrivals at Auckland and Christchurch International Airports. The spokesperson says: “In
Brisbane, for example, the rental fee used to depend only on passenger numbers. Now it depends onlyww on sales volume.” In Q1 2020, Lotte reported a 50%
Above: Lotte is among those retailers seeking rent relief from Incheon International Airport Corporation during this difficult time.
the IIAC relating to the airport’s decision to suspend ordinary MAG conditions linked to passenger numbers for the first six months of the next contract year. Under the current concession
terms, the MAG from the second year is calculated according to a 50% rate of change in passenger numbers in the previous year. Rents can increase or decrease within a +9% scope, dependant on the swing in passengers. Given the circumstances at the
time — passenger levels shrank by more than 90% at Incheon in March —it was anticipated that rents would reduce by up to 9% next year. Terms of the proposals indicate
retailers would forfeit the 9% reduction in MAG for the next year should they choose to avail themselves of the 20% cut.
“Back home, much has been made of the long and tedious concession negotiations involving Incheon International Airport Corporation and the three major Korean retailers.”
Spokesperson, Lotte Duty Free
The application form for the rent relief is understood to state that the rate of decline in passengers would not be reflected when calculating rent for next year. All developments outlined above
followed IIAC’s decision to cut MAGs for up to six months on 1 April. Until then, talks over rent relief had reached deadlock. Travel retail conglomerates welcomed the reduction but felt it did not really address the burdensome situation.
Incheon T1 bid surrendered Consequently, Lotte Duty Free and The Shilla Duty Free surrendered their respective bids to operate duty free shops at Incheon Terminal 1, as they believed it would be difficult to operate the concessions under the existing bid conditions. Further afield, Lotte has been
granted rent relief due to the crisis from the likes of CAG, its soon-to- be landlord at Singapore Changi and Brisbane Airport. Having acquired JR Duty Free’s
business in Australia and New Zealand in 2018, Lotte runs airport duty free stores in Brisbane, Melbourne, Darwin and Wellington. It also operates collection points
sales slump (overseas and domestic) compared to the same period in 2019, as visitor arrivals to South Korea dropped due to the pandemic. Back in January, for example, total
visitor arrivals amounted to 1,272,708 (Source: Korea Tourism Organisation), but in February, the number slumped to 685,212.
Online opportunity? Last year, visitor numbers reached 1,104,803 and 1,201,802 in January and February respectively, so the impact of the crisis and strict travel restrictions in place is clear. The Korean duty free industry
has long relied on high spending Chinese consumers and daigou traders in particular. With Chinese visitor arrivals dropping from 481,681 in January 2020 to 104,086 the following month, it is easy to understand why retailers such as Lotte have suffered so greatly. This publication recently spoke
to a number of DF&TR companies which confirmed they are focusing on digital and online opportunities to maintain sales during the pandemic. Last year, Lotte’s online store
generated record sales of KRW3.2tn- $2.63bn (See p59 of the Korea Report), but this part of the business also suffered in Q1, indicates Lotte’s spokesperson. Offering some final thoughts
on the impact of the pandemic on Lotte’s domestic business, the spokesperson concludes: “The thing to remember is that visitors know they must enter quarantine for two weeks once they arrive in South Korea and then for another two weeks or so when they return to their home country (quarantine periods vary depending on countries people are from and can change at any moment). “At the moment, there are literally
Lotte Duty Free marks its 40th anniversary in 2020. 30 TRBUSINESS
no tourists going out or coming in, meaning retailers are unable to generate revenue.” «
MAY 2020
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