Lotte, Shilla face new fight in duty-free business

Lotte, Shilla face new fight in duty-free business

Shinsegae, Korea's second-largest retailer, and cosmetics-maker Charmzone on Wednesday were selected to run the much-coveted Incheon International Airport duty-free zone starting from September until 2020.

The newcomers will be joined by the existing powerhouses Lotte and Shilla at the airport that generates the world's highest duty-free sales with around 2.3 trillion won (S$2.84 billion) in 2014.

According to the airport authorities, Shinsegae will be running the fashion and accessories section while Charmzone, famous for its massage cream and other products for mostly middle-aged women, won the spot allotted for small and medium-sized companies.

Shilla and Lotte, which already run cosmetics, perfumeries, tobacco and fashion outlets at the airport, have also managed to renew their contracts, but for operations half their current size.

Hotel Lotte won the right to open stores in four of the eight areas while Hotel Shilla grabbed three and Shinsegae Chosun Hotel won one. Charmzone will be running a separate and specialized zone.

"We will (offer) a range from affordable goods to the very high-end products that could meet the needs of people of all ages, ethnicities and cultural backgrounds," an airport official said.

"To start with, a 'luxury boutique avenue' will be created at the center of the passenger terminal to bring both commercial and artistic sides of shopping."

This was the third duty-free store bid for the Incheon airport since its opening in 2001. The airport has been the object of desire among duty-free store operators worldwide due to its large sales volume.

Hotel Shilla, for example, made 90 percent of its 2.9 trillion won revenue last year from the duty-free sector, and 40 percent of duty-free sales were from the Incheon airport outlet.

The influx of Chinese tourists and others have also drawn rosy perspectives among retailers, and 11 companies including Thai DFS operator King Power have joined the bidding.

However, pundits suggest that running the airport outlet might not be as profitable as expected because of the soaring rents ― the bid winners are rumored to have suggested around 1 trillion won as annual rent.

"But having successful outlets in Incheon could be helpful in plans for overseas expansion. It also helps to attract tourists to the more profitable urban duty-free stores. It is a great publicity opportunity. This is why retailers tolerate the rent hike," a duty-free store worker told The Korea Herald.

"It may seem like Lotte and Shilla have lost their privilege but because they will pay less rent, the operating profit rate may go up," Kim Min-jung, analyst at the KB Securities and Investment, was quoted as saying to a local daily.

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