Profiling the world’s top travel retailers

Lotte Duty Free


2017 turnover

€4,842 million

2017 rank



Even amid the toughest of years in 2017, South Korea’s long-time travel retail leader Lotte Duty Free generated revenues of KRW6.201 trillion, a rise of just over +2% in Korean Won terms year-on-year. This translated to €4.842 billion based on our 31 December 2017 exchange rate to the Euro, just ahead of the €4.78 billion total in 2016. That maintains Lotte Duty Free’s second place in our rankings.

Although the rise does not come close to matching Lotte’s stellar growth rates of recent years, any increase is noteworthy given the sharp impact of the THAAD crisis (see below) and the downturn in Chinese tourism. Lotte Duty Free says it expects 2018 to deliver a higher rate of growth. With Chinese tourism recovering fast, that much seems certain.

What the top-line numbers mask is the impact on profitability that Lotte Duty Free and other retailers faced in 2017. All, and Lotte Duty Free especially, suffered badly from the Chinese backlash against South Korea’s deployment of the US anti-missile system THAAD (on Lotte Group land). Other factors confronting the industry included intensifying competition, onerous airport concession fees and soaring travel agency commission rates (linked to the soaring daigou business).

Lotte Duty Free profits fell sharply last year, but the retailer is upbeat about the future, notably for its downtown business (above and bottom) and growth in overseas markets (Lotte Duty Free Tokyo Ginza pictured below).

Crucially, against this backdrop Lotte Duty Free walked away from three of its heavily loss-making contracts at Incheon International Terminal 1 (retaining liquor & tobacco).

Importantly for both top and bottom lines, the customer base in Korea has changed fundamentally too. Instead of package tours and FIT visitors, Lotte Duty Free and other travel retailers have relied increasingly heavily on daigou, or shuttle traders, mainly travelling to and from China. A business that was about self-consumption or gifting has now become one dominated by purchasing for re-sale.

All of this meant a sharp fall in Lotte Duty Free profits from around US$300 million in 2016 to around US$70 million group-wide in 2017. Without the impact of the Incheon T1 losses Lotte estimates profits would have been around US$200 million.

But the retailer has been plotting its fightback. Profitability should improve without the weight of the Incheon T1 concessions, cost-cutting measures have had an impact, while Chinese tourism is returning. Encouragingly, sales outside Korea climbed by +52% in Q1 on the back of the company’s burgeoning duty free presence in Vietnam (which posted a profit) and Japan (which grew +35%).

Expansion in Vietnam and possibly elsewhere remains on the agenda as the company seeks to insulate itself from further shocks in its home market. Expect the overseas business to contribute a greater share in future and Lotte to chase international growth through both acquistional and organic development.

The Moodie Davitt e-Zine | Issue 244 | 20 July 2018