SOUTH KOREA. Lotte Duty Free plunged to a KRW28 billion (US$20.5 million) loss in the first-quarter despite an +8.7% year-on-year increase in sales to KRW819.6 billion (US$599 million).
The figures, disclosed by parent company Hotel Lotte in its Q1 consolidated results, exclude the performance of Lotte Duty Free’s downtown and airport operations in Busan.
While duty free revenues increased, driven by the “full-fledged operation” of global branches, the group tourist recovery rate fell “far short” of pre-pandemic levels due to the prolonged Chinese domestic economic downturn, the company said.
Duty free operating profit turned to loss due to multiple factors such as increased product costs due to unfavourable exchange rates; high labour costs due to operating multiple stores; and rent burdens.
Lotte Duty Free said it is striving to improve its structure to increase profitability. It is strengthening marketing to increase sales to the increasing number of Korean citizens and overseas independent travellers (FITs) and reducing dependence on “commercial customers” [bulk resellers -Ed] who involve a high burden in terms of promotional costs.
As a result, Lotte Duty Free’s proportion of domestic commercial customers decreased from 73% in Q1 2023 to 53% this quarter (still a notably high percantage -Ed). Overseas store sales increased by +48.7% year-on-year during Q1.
A Lotte Duty Free spokesperson said, “As uncertainty in the duty-free industry and the external environment surrounding it is expected to continue, we plan to focus all of our company’s capabilities on managing fixed costs and improving management efficiency to improve performance.” ✈
