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With South Korea’s leading travel retailers in the news to an unprecedented degree (The Shilla Duty Free’s triumph in the Changi Perfumes & Cosmetics tender; Lotte Duty Free’s win in Guam; and Incheon International Airport’s record duty free sales in 2013), there’s certain to be widespread interest in a fascinating new book that examines the rise of the country’s duty free industry over the past 50 years.
That’s especially so given that the author is Choi Young Soo, the great pioneer of Korean duty free. YS Choi was the CEO and later President of Lotte Duty Free and the President of the Korea Duty Free Association from 2008 to 2012. He was the driving force behind the remarkable rise of South Korea’s travel retail industry, which has seen it grow from a single airport store in 1962 to its current status as the world’s leading duty free market.
Like many in the business, I know YS Choi well. I have visited South Korea at least once a year since 1989 and from those early times right through to his retirement in early 2012, he would always be there to greet me with his smile, his time, his wry sense of humour and his great industry knowledge.
I learnt much about the industry in South Korea from the many off-the-record anecdotes he would tell me over dinner and a glass or two of red wine. One of the biggest disappointments of my time in travel retail was the fact that I was unable to present him with The Moodie Report’s Lifetime Contribution to Travel Retail award at the 2012 Trinity Forum in Seoul, due to his unexpected retirement a few days earlier. He deserved a large audience to witness the richly deserved accolade though I like to think that it was with no less pride that he was able instead to accept it from me at a private dinner in Seoul.
As I wrote in my Blog the next day: “Lotte might be a powerhouse today but in the early 1980s it was nothing of the sort. YS Choi spent countless difficult days trying to convince European luxury brands to make themselves available through Lotte’s stores.
“It was never easy,” he recalled in a landmark interview I did with him in 2006. “At that time very few people from Korea travelled abroad, so it was very difficult for me.” What was your role in those days? I asked. “Merchandising, marketing, sales and everything – I worked in every sector,” he said with a laugh. “That is how I came to know all the big guys.”
And plenty of big guys feature in YS Choi’s new book, ‘From Tribulations to Triumph’. He relates a series of great stories about how he lured the biggest names in fashion and luxury to Korea. Any Business Development Director could learn much about the collective worth of tenacity, integrity and passion. But by far the most compelling section is dedicated to the famous Honolulu Airport and downtown duty free tender of 1988. This is the first time the Korean side of that story has ever been told and it’s equally as intriguing as the DFS accounts down the years.
This tender ranks in travel retail history as the greatest overbid of all time, even to this day. I’ll let Mr Choi take up the story: “The bidding, our first-ever overseas attempt, was up against the world’s largest duty free chain, DFS. This was like a battle between David and Goliath.
“Since the bid was for both the airport and downtown shops, an initial investment would require a considerable amount for a newcomer. A downtown shop would involve substantial real estate investment costs for a newcomer. Annual sales revenue of DFS at that time was around US$1.6 billion.
“The challenge by Lotte, a newcomer in the industry, might have come as a surprise to DFS. Their perception was that Lotte was not a match for them in terms of sales and size, and that it would submit an amount that would barely be enough to save face.
“[However] DFS mobilised its information channel and collected information about us. The CEO of Lotte Duty Free was a former Samsung executive known for his aggressive management style. Lotte Duty Free had just unveiled plans to launch a more aggressive business strategy at that time, and DFS predicted that Lotte would apply this new strategy at the bidding. Rumours abounded that Lotte’s ambition went beyond Hawaii, setting its sights also on Los Angeles. The rumour unnerved DFS’s executives. With the bidding for LA just around the corner, DFS was determined to nip Lotte’s plans in the bud.
“During the bidding process, the curtains were drawn at the Lotte corporate attorney’s office. The notes taken during the meeting were stored discreetly. I was followed by security personnel even to the restroom. On the day of the bidding, I was accompanied by our attorney, with a patrol car guarding us in front and back of our vehicle.
“I walked into the bidding hall and sat down with the envelope containing the bidding amount. Around 20 people form DFS, already seated, all stared at me at once. If I had not shown up at the bidding, DFS would have been the sole bidder and they would have won the bid at a low price. Unfortunately for them, I showed up, and they were forced to change their plans. The bidding deadline was 2:05pm. I submitted my bid at 2:02pm, three minutes before the deadline. DFS immediately followed suit.
“The moment of truth finally arrived. The Minister of Transportation first opened the envelope submitted by DFS and stated their bidding amount. It was three times higher than the amount I had submitted. I was so stunned I did not know what to think. Then the amount I submitted was revealed, followed by an announcement naming DFS as the winning bidder. Not a single mention of congratulations was heard.
“Everyone just sat there uttering not a sound; you could hear a pin drop. It was a winning bid with the widest-ever margin from the second-highest bid.”
“I have participated in domestic as well as overseas biddings. Upon deciding on my bidding price, I always find myself tempted to submit a higher offer. The fears of uncertainty invariably raise the amount as the bidding proceeds. DFS was probably under the pressure of that fear that day. The outcome of the bid was on account of overly aggressive bidding by DFS, and lack of confidence and experience on the part of Lotte.”
Choi’s nicely phrased commentary is an interesting counterpoint to the DFS account of the story contained in Conor O’Clery’s rightly acclaimed biography of DFS Co-Founder Chuck Feeney, ‘The Billionaire who Wasn’t’, a work that every newcomer to the travel retail industry should be made to read.
O’Clery writes how Feeney and his fellow founder Bob Miller “had picked up intelligence about a rival Korean company preparing to make a bid”. Nervous about the unexpected rivalry, co-owners Feeney, Miller, Alan Parker and Tony Pilaro sat around a table constantly upping the ante until they finally settled on US$1.151 billion, the highest price ever bid for a duty free concession anywhere in the world, before or since. If stacked in actual Dollar bills, it would have been 72 miles high.
“They were offering to pay the State of Hawaii some US$2 million every three days for the next five years, just for the right to run a couple of stores. It was more than six times what they had paid the previous year, US$185 million, for ALL their concessions around the world,” O’Clery notes.
The DFS quartet duly attended the opening of the sealed bids. Here’s O’Clery again: “It emerged that there was indeed a rival. It was Hotel Lotte of South Korea. But their bid was a mere US$372 million. The DFS owners sat there, aghast. They had bid US$779 million more. ‘We left a shitload of money on the table, three-quarters of a billion Dollars,’ said Pilaro.”
Feeney, who later defended the bid by saying “The worst thing to do was lose”, related how just five years later DFS retained Hawaii for a further four years for just US$401 million.
There’s more, much more in YS Choi’s new book. Students of our industry, of whom I believe there are not enough, will find his anecdotes and insights not only entertaining and informative but helpful in putting today’s travel retail industry in an important historical context.
I’ve got two copies of ‘From Tribulations to Triumph’ to give away. To go into the draw, please e-mail me at Martin@TheMoodieReport.com headed ‘YS Choi book competition’ by 22 January, by answering the following four questions.
1) What does the Korean term Hallyu mean?
2) At what major airport dating back to its very beginnings did DFS score a triple tender triumph in 2012?
3) What was Lotte Duty Free’s first overseas airport duty free location?
4) What was ‘Chuck’ Feeney’s real first name?
The questions may look easy. But I’m willing to bet that there won’t be many correct answers.