HDC Shilla, the joint venture that, last month, was given the green light for its 27,400sq m ‘DF Land’ downtown concept at Yongsan I’Park Mall in Seoul, is expected to generate revenue of KRW670.8bn/$578m in 2016, and produce an operating profit of KRW57.7bn/$49.7m.

The forecast was made on Monday by KDB Daewoo Securities Research whose Analyst, Regina Hahm, says: “We are bullish on the new downtown duty free store given Hotel Shilla’s unrivalled competency and the store’s desirable location.

“That said, we do not expect the new store to generate significant revenue immediately after its opening, given the nature of the duty-free business (which is heavily affected by merchandising).

“It should also be noted that duty-free revenue is more correlated to user traffic than floor space. As Hotel Shilla’s existing downtown Seoul store has demonstrated in the past, we expect actual space to gradually increase and traffic growth to drive efficiency gains over the long term.”

KDB Daewoo Securities believes that the downtown award will also positively benefit the long-term growth of Korea’s duty free and travel retail market as available capacity has reached its limit. “Not a single new downtown duty-free licence had been issued since 2000, even though outbound and inbound traffic nearly tripled during that time,” says the company.

SHILLA DF SEES Q2 GROWTH DESPITE MERS

The downtown project will be a major fillip to DF&TR sales at Hotel Shilla from 2016. In the current year, the MERS virus took its toll on inbound tourist traffic in June, but that did not stop sales growing in the second quarter.

In the period, the domestic duty-free business generated revenue of KRW662.3bn/$570.4m (+5.6% YOY) and an operating profit of W45.4bn/$39.1m (+30.5% YoY). The sales split between downtown and airport was KRW417bn and KRW245bn.

Taking into account the dampened spending in Q2 and Q3 due to MERS-related travel cancellations, KDB Daewoo Securities forecasts that Shilla’s DF&TR revenue for the year will reach KRW2,766bn/$2.4bn in the domestic market alone (see table below and click to enlarge).