Moodie Davitt snapshot: Incheon Airport duty free sales results 2017
Sales up +4.1% to US$2.1 billion
Passenger traffic up +7.6%
Beauty flat at +0.5% to US$774 million (38% share)
Liquor & tobacco +4.3% to US$450 million (21.9% share)
Leathergoods +7.5% to US$301 million (14.3% share)

Positives: Robust top line given THAAD and North Korea challenges; Leathergoods keeps pace with traffic; T2 boost imminent; THAAD row easing
Negative: Sales growth less than pax rise; Daigou business helps beauty category but short-term; Retailer profitability squeezed badly

Source: The Moodie Davitt Report

SOUTH KOREA. Incheon International Airport posted all-time high duty free sales of US$2.1 billion in 2017, a +4.1% rise over 2016. While sales failed to keep pace with a +7.6% rise in passenger traffic, the result is surprisingly positive given a deeply challenging environment.

The result returns the South Korean gateway to number one airport duty free sales location worldwide, ahead of Dubai International, where Dubai Duty Free sales reached  US$1.93 billion last year.

The performance came despite the negative impact on Chinese tourism from the dispute between South Korea and China over the former’s deployment of US anti-missile system THAAD in March 2017. As reported, Chinese arrivals for the first 11 months of 2017 slumped by -49.% to 3,836,879, a 31.4% share of all visitors compared with a 46.8% share in 2016.

Incheon International Airport Corporation (IIAC) acknowledged the impact of THAAD on the tourism sector but said the airport was less exposed to Chinese spending than downtown duty free shops (for whom Chinee shoppers generally contribute upwards of 65% of total spend, in some cases much higher).

“Some suspected that there would be negative impacts on sales due to the THAAD crisis and security issues regarding North Korea in 2017,” IIAC said. “However, sales increased +4.1% compared to those in 2016. Incheon International Airport, where dependency of Chinese customers is relatively low thanks to Korean and other nationalities, confronted these challenges by diversifying customer demography, offering customer-friendly promotions with first-hand experiences, and inviting diverse global and local brands [to be present];   not to mention the increasing passenger traffic.”

Beauty sales flat but leadership maintained

Cosmetics & Perfumes continued to be the best-selling category with sales edging ahead of 2016 by +0.5% to US$774 million, a 38% share of total revenues. Liquor & tobacco (21.9% share) followed with US$459 million (+4.32%), with leathergoods (14.3% share) up by +7.5% to US$301 million the third-ranked category.

Its retailers’ profitability may have been under tremendous pressure in 2017 but Incheon International Airport’s top line remains robust

The November arrivals figures (above) still don’t make pretty reading but the worst appears to be over for Chinese tourism to South Korea as the THAAD row eases [All charts from Korea Tourism Organization, click to enlarge]

The January to November visitor numbers underline both the gravity of the Chinese decline and the country’s over-reliance on a single nationality

Fortunately for the travel retail sector, and for Incheon International Airport, outbound travel by Koreans has remained strong

Luxury sales, driven by leathergoods, held their own in 2017, driven by very strong outbound Korean passenger traffic

Terminal 2 opening to boost 2018 revenues

The 2017 results will boost IIAC as it prepares to open the new Terminal 2 at Incheon International Airport on 18 January.

T2 will feature six duty free retailers (Shilla, Lotte, Shinsegae, SM, Entas and CityPlus) across 9,597sq m of space. IIAC said that the offer includes  several outstanding flagship stores offering “unique shopping experiences”. They include Chanel, Dior, Sulwhasoo, Lancôme, SK2 and Estée Lauder.

Liquor & tobacco flagship boutiques include Ballantine’s, Johnnie Walker, Royal Salute, Hennessy, KT&G and IQOS (a Philip Morris International-owned electronic cigarette brand), all run by Lotte Duty Free. The central luxury boutique street will feature 20 boutique brands. T2 exclusive brands include Chanel, Valentino, Chloe, Rimowa, and Etro, IIAC said.