Profiling the world’s top travel retailers
Lotte Duty Free
Lotte Duty Free’s stellar sales growth was aided by the consolidation of daigou operators and large-scale daigou volume orders, which boosted its downtown stores’ turnover
In line with other Korean travel retailers, Lotte Duty Free’s top line flourished in 2018, with large scale daigou re-sellers increasing their orders and FIT visitor numbers from China growing sharply after a difficult 2017.
The stellar growth rate is noteworthy given that package tours from China remained suspended throughout the year (related to the long-running THAAD dispute between Korea and China, and the use of Lotte Group land for the anti-missile defence system) and that Lotte exited three of its loss-making Incheon Airport Terminal 1 airport concessions in July 2018.
The consolidation of daigou operators and larger scale daigou volume orders made up for the shortfall and continued to drive revenue growth in the first half of 2019.
Given the scale of losses it faced at three of its Incheon T1 concessions (it retained liquor & tobacco), the decision to exit was justified on the basis that the situation could only have worsened. Had Lotte continued to operate all three stores the annual rent for 2018 would have been close to KRW1 trillion. The loss of the stores means Lotte now operates just two concessions (DF3 liquor & tobacco in Terminal 1 and DF2 liquor, tobacco and food in Terminal 2) in Incheon Airport.
The overseas business (Lotte Duty Free in Tokyo Ginza pictured) will be key to realising the ambition of becoming the world’s number one travel retailer
Despite its market share shrinking (42% in 2017, 40% in 2018), Lotte Duty Free remains the dominant force in Korea’s expanding travel retail market and acts as the price setter in deciding travel agency commission rates in the highly lucrative Myeong-dong area.
The continued success of the duty free business is key to Hotel Lotte’s IPO which the Korean media speculates may occur in the second half of 2019. It remains to be seen if the new ecommerce law in China will dent those expectations but Q1 2019 performance suggests that turnover will continue to grow. In that period, Lotte Duty Free’s sales grew 10.2% year-on-year to KRW1,396.5 billion with operating profit at KRW84.7 billion, turning around a loss in the same quarter in 2018.
While the Korea Customs Service has seen fit to issue six new duty free licences in the highly competitive Korean duty free market, Lotte Duty Free is focusing even more on expanding its footprint outside the country. Key developments in 2018 included the opening of the Nha Trang Cam Ranh Airport concession in Vietnam (June 2018).
In addition, Lotte Duty Free signed a contract to acquire JR Duty Free’s Oceania operations in August 2018, with the deal (which took effect on 31 December) covering stores at Brisbane Airport, Darwin Airport, Canberra Airport and Wellington Airport, plus a downtown store in Melbourne.
From sales of KRW200 billion in 2018, the target is to hit KRW1 trillion in overseas business by 2020. The performance of these new duty free stores, along with other overseas business, including potential concession gains or acquisitions, will hold the key to Lotte achieving its target of becoming the number one duty free retailer in the world.
Downtown store sales growth outstripped that at airports, with the exit from Incheon T1 a landmark decision
The Moodie Davitt eZine
Issue 264 | 16 July 2019
The Moodie Davitt eZine is published by The Moodie Davitt Report (Moodie International Ltd) every month.
© All material is copyright and cannot be reproduced without the permission of the Publisher.
To find out more visit www.moodiedavittreport.com and to subscribe, please e-mail firstname.lastname@example.org