SOUTH KOREA. Shinsegae Duty Free’s sales surged ahead in Q4 2019 by +34.6% year-on-year to KRW868.1 billion (US$738.0 million), writes The Moodie Davitt Report Senior Retail and Commercial Analyst Min Yong Jung.

The country’s third-largest travel retailer was buoyed by its flagship Myeong-dong store outperforming the market with sales growing +45.9% year-on-year to an estimated KRW476.3 billion (US$404.9 million).

South Korea’s total downtown duty free market grew +40.3% year-on-year in Q4 2019, according to Korea Duty Free Association figures.

Looking up: The Gangnam store’s performance improved sharply

The Myeong-dong store’s higher exposure to luxury brands and western cosmetics products spurred the outstanding performance.

Shinsegae’s Gangnam downtown store and Incheon International Airport Terminal 1 duty free concessions (opened in July and August 2018, respectively) are more mature now and both showed strong growth off a low base.

Duty free (denoted above as DF) flourished for the department store and travel retail powerhouse; Source: Shinsegae Department Store

Start-up losses ease; one-off benefits

Shinsegae Duty Free’s operating profit turned positive with Q4 2019 seeing a KRW71 billion (US$60.4 million) gain. The Gangnam and Incheon T1 operations improved; both having seen high opening costs in the comparative quarter.

However, most of the profit came from KRW57.7 billion (US$49.1 million) in one-off gains – KRW48 billion from change of lease accounting and KRW9.7 billion from a reversal of duty free commission rate appropriation.

Excluding the one-off gains, duty free operating profit reached KRW13.3 billion (US$11.3 million). Operating profit margin was 1.5% – similar to the 1.4% posted in the previous quarter.

Powerhouse performance: The flagship Myeong-dong store outperformed the market with sales growing +45.9% year-on-year to KRW476.3 billion (US$404.9 million)

Shinsegae Duty Free announced a total impairment loss of KRW312 billion (US$265 million), reducing the asset value of the duty free licence from KRW870 billion to KRW558 billion. The change in accounting will improve the profitability of the business in 2020 and the company commented that the business will benefit by KRW60 billion (US$51 million) in operating profit for the full year in 2020 from lowered depreciation/amortisation cost.

The retailer’s total annual sales for 2019 increased by +55.7% year-on-year to KRW3,127.7 billion (US$2,682.1 million) and operating profit leapt +73.8% to KRW111.6 billion (US$95.8 million). There were no new store openings to burden profits and competition among major operators was subdued despite the implementation of the new ecommerce law in China on 1 January 2019.

HIgh concession fees make the Incheon International Airport business tough but Shinsegae’s performance continued to improve

“Outstanding” Vidi Vici spurs Shinsegae International

Shinsegae International announced preliminary results on 5 February with private label colour cosmetics brand Vidi Vici, an outstanding success of recent years, still outperforming expectations. Shinsegae International’s Q4 2019 sales grew by +9.4% year-on-year to KRW397 billion (US$336.8 million) with the cosmetics business continuing to power ahead – up +41.3% year-on-year to KRW99.6 billion.

Vidi Vici accounts for the majority of Shinsegae International’s cosmetics and fragrance business (61% of total cosmetics sales). The brand grew by an estimated 65% year-on-year in the latest quarter.

Shinsegae International’s skincare line Yunjac, which closely resembles Amorepacific’s flagship Sulwhasoo brand, began to show signs of life in the latest quarter. Aided by sales in online duty free stores and aggressive promotions, Yunjac’s sales are estimated to have reached KRW5 billion, the first material jump in sales since the brand’s launch in Q4 2019.

It remains to be seen if Shinsegae International will be able to replicate the growth strategy that saw Vidi Vici grow from just KRW6.3 billion (US$533,000) in 2016 to KRW237 billion (US$ 200 million) in 2019. Pushing sales to Chinese consumers and the duty free channel proved key for the dramatic turnaround in Vidi Vici’s fortunes.