SOUTH KOREA. Regulatory clearance is now all that stands in the way of a dramatic consolidation of the South Korean duty free market.
As revealed by The Moodie Report on 3 December, The Shilla Duty Free has signed an MOU to acquire Busan-based rival Paradise Duty Free.
Meanwhile – as we reported last month – the country’s leading travel retailer Lotte Duty Free, which enjoys a 49% market share of the combined downtown and airport duty free market, is poised to acquire downtown and airport rival AK Duty Free.
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Lotte Duty Free President YS Choi pictured outside ‘Star Avenue’at Lotte Duty Free’s flagship downtown store in Seoul |
The Lotte deal has to clear two hurdles – agreement from the Fair Trade Commission and from Customs House. Shilla’s agreed takeover of Paradise Duty Free, which has fewer competition repercussions, only has to gain Customs House approval.
The Moodie Report is in Seoul and has met senior management from both Lotte and The Shilla over the past two days to clarify the situation.
Lotte Duty Free President Y.S. Choi told The Moodie Report that he was confident the acquisition of the airport component of AK Duty Free’s business (including its duty free concession at Gimpo International Airport and its key fragrances & cosmetics contract at Incheon International Airport) would pose no problem to the regulator. And he was also hopeful that the combination of Lotte and AK Duty Free’s downtown businesses would also clear all hurdles.
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“Maybe we can finalise this agreement by the end of March“ |
Jason Cha Executive Vice President The Shilla Duty Free |
Explaining why Lotte had targeted a business that is known to be making heavy losses in the face of high minimum annual guarantees at Incheon and a declining Korean passenger base last year, Choi told The Moodie Report: “It was a strategic decision”¦ we should have perfumes & cosmetics [at Incheon].” Lotte was the biggest perfumes and cosmetics retailer at Incheon until the 2007 tender which saw it lose the category to Shilla and AK.
Choi said that the power of the Lotte brand could drive sales at AK’s airport outlets much higher than they are today. “There will be a big jump in sales,” he said.
Talking to The Moodie Report over lunch at The Shilla Hotel in downtown Seoul today, Head of Shilla Duty Free, Executive Vice President Jason Cha said: “We should get it [takeover approval]. We have a 29% market share so we don’t need Free Trade Commission pre-approval.”
Regarding the Customs House clearance, Cha explained that first the Paradise Duty Free business has to be separated from other Paradise Group interests such as its hotel activities which are not part of the deal. Once that is done, and the licence is transferred to the new company, the deal should be formalized, Cha said.
“Maybe we can finalise this agreement by the end of March,” he said.
[Both Y.S. Choi and Jason Cha will be the subject of extensive interviews in the February issue of The Moodie Report Print Edition, which focuses on the South Korean and Japanese travel retail markets, as well as the Duty Free Show of the Americas coverage].
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Louis Vuitton generates 10% of the retailer’s total sales at The Shilla Duty Free in downtown Seoul |
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