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“If KTO withdraws their business we will be looking at other operators who are qualified and who have powerful brands, good marketing and the ability to communicate with consumers“ |
Sang-Ho Lee Manager/Marketing Planning Team Incheon International Airport Company |
SOUTH KOREA. Incheon International Airport Corporation (IIAC) is monitoring events closely in light of the impending withdrawal of Korea Tourism Organization (KTO) and the planned sale of AK Duty Free to Lotte Duty Free.
KTO President Charm Lee confirmed to The Moodie Report on Thursday at its headquarters in Seoul that the state-run tourism body is withdrawing from its retail activities at Incheon this year and all other duty free locations by 2012. The nature of its Incheon exit is still under consideration.
KTO, trading as Duty Free Korea, runs 15 outlets at Incheon International Airport. Its stores cover fashion, boutiques, food, watches, gifts and other items (but exclude liquor, tobacco, cosmetics and fragrances). The state-owned body generated 11% of the airport’s duty free sales of US$945 million last year, but posted losses of US$8 million on that turnover.
Such losses are no longer sustainable and the decision to withdraw “in one way or another” – taken and announced by the Ministry of Finance – will not be revoked, Lee said.
AK Duty Free operates eight stores at Incheon and is one of two retailers running the key perfumes and cosmetics category (the other is The Shilla Duty Free). AK generated a 14% share of duty free sales at the airport last year – but also posted heavy losses.
As revealed by The Moodie Report, parent company Aekyung Group has signed an MOU with Lotte Duty Free to divest its loss-making duty free interests, including the Incheon operation.
That agreement, though, is subject to both Fair Trade Commission and Customs House approval, Lotte confirmed to The Moodie Report last week. If those approvals are granted, the deal should be ratified in March or April. In principal, such ratification clears the way for Lotte to take over the AK fragrances & cosmetics business at Incheon – though any contract transfer would be subject to IIAC approval.
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Korea Tourism Organization, trading as Duty Free Korea, had an 11% share of duty free sales at Incheon last year | |
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Despite a seemingly healthy top line, Korea Tourism Organization’s stores posted losses of US$8 million in 2009 | |
IIAC Manager/Marketing Planning Team Sang-Ho Lee told The Moodie Report on Friday that the airport company was watching both developments with interest. But he said it was too early to say what will happen at Incheon in the event of the withdrawal of KTO and/or the sale of AK.
“We have the right to select our retailers”¦ so if KTO withdraws their business we will be looking at other operators who are qualified and who have powerful brands, good marketing and the ability to communicate with consumers,” he said.
Lee confirmed that non-Korean companies – none of whom were successful in the last duty free tender – would be considered.
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AK Duty Free’s cosmetics & fragrances business at Incheon is the big prize that Lotte covets | |
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The AK business will complement Lotte’s flourishing liquor & tobacco business at Incheon International Airport | |
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Key decisions will have to be taken at Incheon International Airport Corporation headquarters near the airport |
If the AK sale is approved, the transfer of its concession to Lotte is not automatic, Lee said, though he emphasized IIAC’s excellent relationship with the retailer. “The government approval will be completed around April so we will make our decisions then,” he said.
Cosmetics and fragrances (jointly) were the number one category at Incheon in 2009, generating a market share of 34%, ahead of liquor and tobacco (combined 17%) and leathergoods 16%.
Driven by perfumes & cosmetics’ popularity, The Shilla Duty Free was the leading retailer by turnover last year, with a 38% share, just ahead of Lotte’s 37%.
Note: Sang-Ho Lee is interviewed in the February issue of The Moodie Report Print Edition, which will focus on the South Korean and Japanese travel retail markets as well as coverage of the Duty Free Show of the Americas.
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