SOUTH KOREA. Lotte Duty Free will exit its contentious Incheon International Airport Terminal 1 cosmetics, fashion and leathergoods contracts at 8 p.m. tomorrow (31 July), to be replaced by Shinsegae Duty Free.

As reported, South Korea’s duty free giant served notice on 13 February of its intention to quit three contracts – DF1 (P&C), DF5 (leathergoods & fashion) and DF8 (miscellaneous categories). The company cited “the burden of rent increases” following the sharp downturn in Chinese tourists in 2017 amid the THAAD dispute with China.

The three concessions, later consolidated into two by Incheon International Airport Corporation, were subsequently awarded to Shinsegae Duty Free, which commences business on 1 August. Lotte Duty Free will continue to operate its DF3 liquor, tobacco and foods business at T1 until 2020.

Lotte Duty Free said that it expects to save about KW1.4 trillion (US$1.25 billion) in rent by 2020 through its premature exit. “Based on improved profitability through the withdrawal from Incheon Airport, the company intends to strengthen its competitiveness in downtown duty free shops and to expand online duty free shop marketing,” it said.

Over and out: The 2017 slump in Chinese tourism combined with onerous concession fees to drive Lotte’s early exit from three concessions at Incheon.

“In addition, in order to revitalise sales of our [T1] liquor and cigarettes stores, we plan to analyse outbound passengers and target enhanced marketing through improved linkage with city and online duty free shops.”

Lotte said that it also aims to boost downtown and online sales of cosmetics and fashion to avoid losing custom to its Incheon successor. A  customer prepaid card for Lotte’s vacated T1 business can now be used downtown.

Lotte Duty Free plans to concentrate its efforts on expanding business overseas, with Vietnam the key focus. As reported, the company celebrated the grand opening of its Da Nang International Airport concession on 1 November last year, after a soft opening in May. The business, registered as Phu Khanh Duty Free, is a 60/40 joint venture between Lotte Duty Free and a local partner.

In June this year Lotte Duty Free opened arrivals and departures stores at Cam Ranh International Airport in Nha Trang, after being awarded an exclusive ten-year duty free concession.

Lotte said that it also plans to invest heavily in additional downtown stores in Hanoi, Ho Chi Minh City and Da Nang.

Footnote: Lotte employs 1,200 salespeople across the three concessions it has vacated. The company said that it has been in discussions with Incheon International Airport Corporation and Shinsegae Duty Free in order to minimise customer inconvenience and employee disruption.

Lotte Duty Free CEO Jang Sun-wook (centre, pointing) visiting the company’s new Da Nang International Airport in September 2017. “Vietnam is expected to become a bridgehead for us in Southeast Asia as a new market with soaring foreign tourism,” he said.

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