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I’m at Incheon International Airport, preparing to fly to Beijing Capital International Airport for the TFWA/APTRA China Century Conference and then on to Hainan to look at China Duty Free Group’s dazzling new Haitang Bay project this weekend.
It’s been an enthralling couple of days in Seoul. Yesterday I spent quality time in the company of senior management from The Shilla Duty Free and Lotte Duty Free, gaining valuable insight into the dynamics that are shaping the world’s biggest duty free market.
At Shilla I met Executive Vice President and Duty Free Group Head Jeong-Ho (Jason) Cha and Vice President Marketing Division In-Jung (Isabel) Whang (pictured below). After a tour of the Shilla flagship store that was teeming (and that is no overstatement) with Chinese customers just arrived from a cruise ship that had docked at Incheon port (cruise visitors are an increasingly important source of Chinese customers in Korean duty free), we took a lunch at the wonderful Korean House restaurant in downtown Seoul.
Shilla had an amazing year last year, posting a +26.5% increase in sales to US$1.7 billion and a 59.6% rise in operating profits for its duty free division. 2013 has got off to a slower start, with sales up by around +10% in the first two months after a very difficult January, hit by a weakening Yen and poor weather in Seoul. Both the Japanese and Korean business are soft, but Shilla’s momentum, as with all its rivals, is being maintained by continued extraordinary growth in Chinese arrivals and spending.
At Lotte I had the privilege of interviewing President Won-Jun Lee (below), his first interview with the international press.
Mr Lee made Lotte’s ambitions quite clear. To be global number two by 2018, via a combination of organic growth, concession gains and possible M&A opportunities. You can read all about it in an extensive and compelling interview on The Moodie Report.com in coming days.
Lotte also enjoyed a storming year in 2012. Its sales in Korea rose from US$2.4 billion to over US$2.8 billion last year, representing a compound annual growth rate of 25.2% since 2010. But the figure that really jumps out is this – Lotte’s Chinese business almost doubled, up from US$422 million in 2011 to US$821 million in 2012 and in just two years it has quadrupled. Extraordinary. Largely on the back of that dynamic, watches and accessory sales soared by +34.2% between 2010 and 2012 while cosmetics and perfumes sales rose by +36%.
Now I’m no newcomer to Korean duty free (I have been travelling to Korea each year since 1989) but the sight of a near shopping frenzy in the Korean section of the skincare department at Lotte Duty Free’s downtown flagship store yesterday still startled me. Initially I thought there was a special promotion happening but no, Lotte’s Steve Park assured me, it was just a normal day – and not even a peak period. All the customers were Chinese, most were buying Korean BB creams.
Lotte has enjoyed remarkable success since 2003 through clever exploitation of ‘Korean Wave’ (Hallyu in Korean) marketing – many Japanese tourists began to catch Korean pop culture ‘fever’ that year when the famous Korean television drama ‘Winter Sonata’ was first aired. The retailer’s strategy began to evolve into a new cultural paradigm, and from 2007 focused increasingly on links with famous ‘K-pop’ stars from Korea’s booming music industry. It fostered the concept of so-called ‘entertourment’, a combination of entertainment and tourism.
What a masterstroke this approach has turned out to be. Wander, as I did, along the ‘Star Avenue’ entrance to the Lotte store and you will see scores of young Japanese and Chinese women having their photos taken alongside giant images of their idols.
Can Shilla and Lotte eventually replicate their Korean success on the international stage? So far both have had several near misses in some of the big international tenders such as Sydney, Changi, Los Angeles and Hong Kong. But one just gets the very firm impression from both companies that a major offshore breakthrough must happen sooner rather than later.