SOUTH KOREA. Shinsegae has reported a 118.6% year-on-year increase in duty free sales in 2018, to KRW2,009 billion (US$1.8 billion), driven by new openings in Seoul and at Incheon International Airport.
A positive fourth quarter, with sales up 134.5% year-on-year to KRW645 billion (US$573 million), strongly affected the overall result.
Results were broadly in line with market expectations, according to Korean investment community sources.
Sales were boosted by the opening of Shinsegae’s 13,570sq m downtown store in Gangnam, Seoul, in July along with the commencement of the two concessions vacated by Lotte Duty Free at Incheon International Airport Terminal 1 in August.
Duty free operating profit was up 165.5% in 2018, to KRW39 billion (US$34.6 million). However, there was a sharp decline in operating profit in the fourth quarter (-149.1%), primarily as a result of the performance of the T1 airport concessions (a loss of KRW6.2 billion at Incheon, or US$5.5 million).
Losses from the new Gangnam store eased in the fourth quarter, to KRW2.2 billion (US$2 million). There was also a KRW1.8 billion (US$1.6 million) loss at Shinsegae’s Busan downtown store in the quarter, but the company’s Myeongdong shop delivered a KRW15.5 billion (US$13.8 million) operating profit (although this was slightly down on the third quarter).
Average daily sales by store in Seoul and at Incheon International Airport were Myeong-dong KW5.4 billion; Gangnam KW1.1 billion (KW1.4 billion is considered the break-even point); and Incheon KW1.8 billion won (KW2.4 billion is break-even).
Overall downtown duty free operating profit in the final quarter was up 27.8%, to KRW14 billion (US$12.4 million). For 2018, it increased 431.7%, to KRW77 billion (US$68.4 million).
Shinsegae’s overall group net profit for 2018 climbed 29.4% year-on-year to KRW236 billion (US$209.7 million). Groupwide operating income rose 14.8% to KRW397 billion (US$352 million), while sales were up 33.9% to KRW5.182 billion (US$4.6 billion).
Shinsegae said it was expecting a similar level of duty free sales growth in 2019, and for operating profit to improve. The retailer said sales in January were unaffected by the introduction of China’s new e-commerce law introduced on 1 January. Retailers, brands and the investment community have been monitoring the impact of those new regulations closely, fearful that they could spell the collapse of the daigou business that has so driven Korean duty free over the past two years.
