The World’s Top Travel Retailers (continued)
Lotte Duty Free
2023 turnover (million)
€3,842
2023 Rank
4
Movement
▽1
Lotte Duty Free slips a place to fourth in our 2023 listings, with sales of KRW5,489.3 billion (€3,842 million based on exchange rates at 31 December 2023).
Lotte Duty Free continues to retain its leadership in Korean travel retail, but remains affected by deeply challenging Korean travel retail market conditions and testing circumstances abroad.
Despite an increase in customer numbers market-wide last year, sales in the Korean duty-free retail market tumbled by -22.8% due to a collapse in average transaction values. This reflects a sharp decrease in the previously overwhelmingly dominant bulk reseller business into China, hit hard (though far from eliminated) by the Korea Customs Service crackdown on the daigou channel. As the largest player, Lotte Duty Free was at the sharp end of this impact.
2024 to date has seen little relief, with continuing sales declines through to mid-year, led by the downtown channel. Added to that was the impact of new regulations from 1 February aimed at further curbing reseller activity. Lotte Duty Free (excluding Lotte Busan Hotel Duty Free, which is owned separately) racked up a KRW46,251 (US$34.6 million) operating loss in the first half of 2024, a -221.3% slump year-on-year.
Like its rivals in the market Lotte Duty Free has been hit by other factors, including increased product costs due to unfavourable exchange rates and high labour costs due to operating multiple stores.
Lotte Duty Free hit new physical heights with its Central Duplex wines & spirits store at Changi Airport Terminal 3, opened last year and inaugurated in January. But profitability has been at the other end of the spectrum.
These challenges prompted the company’s CEO Kim Ju Nam to introduce a wide-ranging crisis-management programme, announced on 25 June.
Measures include structural improvement of high-intensity business divisions, workforce restructuring, organisational slimming and a -20% reduction in executive salaries.
Speaking to The Moodie Davitt Report in late May, as the company celebrated striking its new ten-year duty-free contract with Brisbane Airport Corporation, Kim said: “There are multiple challenges,” he said. “The first is the exchange rate. Price competitiveness, which is the key competitive attraction of a duty-free shop, is very low now because of the exchange rate.
“Changing travel patterns also represents a challenge. In the past travel meant shopping, but now it’s more experiential and more content based. This is not a temporary syndrome but will be prolonged as a long-term trend. Therefore, we really must produce a new strategy from a conservative, long-term perspective.
“I would say the year 2019 was the peak time for our industry. Our ultimate goal is to achieve 70% of what we had back in 2019. To attain this 70%, while we continue restructuring our business, I believe unfolding duty-paid business as a new growth driver will be a cornerstone for sustainable growth.”
For more comment, see the full report in The Moodie Davitt Magazine for July/August, out soon.
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Issue 336 | 20 August 2024
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