TOP 10 OPERATORS 2018 2: LOTTE DUTY FREE


2 I


Lotte DF on diversification path after punishing year


Aggressive marketing tactics at home and expansion abroad has yielded strong half-year results for Lotte Duty Free, but while it can expect some improvement in the bottom line following the cessation of its loss-making contracts at Incheon Terminal 1, there is still work to be done. Luke Barras-Hill reports.


mpressively, Lotte Duty Free (Lotte) appears to have weathered a volatile trading year for South


Korean duty free. The long-running impasse


between Beijing and Seoul over the US-supplied THAAD missile defence system resulted in South Korea absorbing a calamitous hit to its Chinese tourist numbers in 2017. The decline peaked in July last year


(-69%), providing a perfect storm as Lotte faced rising rents and fees at Incheon International Airport. According to an annual results


statement, these catapulted by 55% to KRW62bn ($55.3m) at the start of its third contract year in September. These factors combined to


produce a ‘record low’ operating profit of KRW2.5bn ($2.4m) in 2017 on sales of KRW5.45tn ($5.2bn), excluding its Busan downtown and Gimhae Airport operations. Speaking to TRBusiness in the Top


5 Asian Operators report in May, the South Korean travel retailer pointed out that there had been ‘no noticeable sign of normalisation’ in bilateral relations despite conciliatory


OCTOBER 2018


gestures between both countries. Despite this, Lotte declared 2017


to be a ‘satisfying year’, a remark given further impetus at the beginning of 2018. Chinese visitor arrivals to South


Korea grew by 46% to 410,337 according to the latest July figures released by the Korea Tourism Organization [correct at


the time of


publication-Ed]. This is evidence of an upward


trend that produced growth of +46% in May and +49% in June, following a recovery beginning in March (+11.8%).


Incheon T1 loss-makers Despite the seemingly optimistic outlook, Lotte continues to remain cautious on any great rebound in Chinese passenger volumes. “We have not noticed any increase, however


significant


conditions are getting better,” comments Kim Bo-joon, Marketing Director, Lotte Duty Free. “There will be a turnaround in the near future for sure. It has been reported that travel agencies in China have


Despite the seemingly optimistic outlook, Lotte continues to remain cautious on any great rebound in Chinese passenger volumes.


TRBusiness TOP 10 OPERATORS 17


resumed tours to South Korea.” As well documented by TRBusiness,


Lotte had been pushing hard for a rent reduction at Incheon International Airport. Following what was understood


to be a protracted period of discussion, Lotte announced in February this year that it was relinquishing three out of four of its Terminal 1 concessions. These covered DF1 (perfumes &


cosmetics), DF5 (leathergoods & fashion) and DF8 (all items). This was ratified in March and effective from July, leaving it with only liquor & tobacco (DF3) at T1. Lotte said the ‘burden of rent


increases’ coupled with plunging Chinese tourist volumes due to THAAD and the extension of government permits for four


Above: The travel retailer has struggled with business in Indonesia. Pictured here is its Jakarta downtown shop.


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