Korean giants eye new contracts

By Charlotte Turner |

Both Lotte Duty Free and Shilla Duty Free will bid for several important tenders this year besides Incheon Airport, according to both companies.

 

All three major duty free concessions held by Lotte, Shilla and the Korea Tourist Organization (KTO) expire at Incheon on February 28, 2015 and bidding is expected to be keen for the new duty free licenses, although the airport owner Incheon International Airport Corporation has yet to reveal plans for its new concession system.

 

This is expected to reflect the government’s new stated policy of encouraging competition from new operators and smaller-sized companies entering the duty free industry.

 

“The Incheon Airport tenders are the big one this year. An RFP will be issued to all bidders in May or June with a final announcement likely in September or October,” said a senior Lotte spokesman.

 

“This year is a big year for the South Korean duty free industry. No one knows how the Incheon concession system will be arranged.”

 

Lotte Duty Free operated Liquor and Tobacco store at Incheon Airport.

 

LOTTE HAS 50% OF ALL INCHEON SALES

Lotte, which records almost half of Incheon Airport’s duty free sales, holds three concessions at the airport to sell liquor and tobacco, fashion goods and general merchandise, and perfume & cosmetics.

 

Shilla Duty Free is also preparing to defend its primary Perfume and Cosmetics concession at Incheon Airport. This is taking place at the same time that it is preparing to take over running its first really major overseas.

 

For its part, KTO has already been told that it will be allowed to rebid for its fashion and general merchandise concession, reversing an earlier decision that this would not be permitted.

 

Meanwhile, Shiila Duty Free is already preparing to take over Singapore’s Changi Airport’s perfume & cosmetics concession. As already reported comprehensively on TRbusiness.com this tenancy begins on 1 October 2014, comprising 19 outlets totalling more than 5,000sq m in Terminals 1 to 3, and about 1,800sq m of retail space in the new T4, which is presently under construction.

 

Shilla’s victory in winning the coveted Changi P&C contract is a major step forward and will elevate the company’s reputation with airport owners in Asia and further afield, while increasing its chances of winning duty free concessions at other major international airports.

 

Artist’s rendering of a Shilla-operated Cosmetics and Perfumes store at Changi Airport.

 

SHILLA’S GROWING ASIAN FOOTPRINT

While Shilla’s extensive knowledge of Chinese, Japanese and Korean consumer behaviour will be invaluable in operating successfully in Changi, it will also learn more about the growing Southeast Asian travel and duty free market, which will be useful as more Southeast Asian tourists visit South Korea.

 

“We have made a whole business plan for Changi –- there is a lot for us to do there with outlets now, plus more in the T4 terminal. We are using an American company for the retail design,” commented a senior Shilla spokesman.

 

“We are looking to put in more brands. Nuance-Watson is doing good business, we want to take over their strengths, but add our capability.

 

“We have our business in South Korea and the main business is Chinese customers, so we have experience and we can add something from that.”

 

Shilla also has further ambitions for the Asia-Pacific region, as Cha explained: “Changi is very big for us – we will focus on that and then we plan to expand in Southeast Asia. Chinese passengers are the only segment growing and will grow in future, so we will focus on Chinese passenger destinations.

 

“Also, we have shown our intention to bid for Sydney Airport and we are considering the Hong Kong MTR station tender as there are a lot of high speed rail stations in China.

 

NEW CONTRACT OPPORTUNITIES

In the meantime, Lotte continues to look at expanding its overseas operations, which are expected to provide the company with greater long-term business growth potential than South Korea’s domestic duty free market.

 

The retailer is currently renovating the boutique area in Guam International Airport where it took over from the previous long-time operator DFS to win the airport’s sole operator duty free concession last year.

 

In Indonesia, it is also expected to bid for three duty free shop licenses this year at Jakarta’s Soekarno-Hatta International Airport where it already operates two duty free shops – one selling fashion goods and general merchandise and the other P&C and L&T.

 

As mentioned earlier, Lotte opened a downtown duty free pre-order shop in Jakarta last year and it has confirmed that it remains interested in operating duty free outlets in other Indonesian airports.

 

Elsewhere, Lotte also plans to bid for the Sydney Airport duty free concession currently run by Nuance and in Hong Kong the retailer is planning to bid for the MTR Kowloon station duty free license to operate shops that will serve passengers using the under-construction Hong Kong to Beijing high-speed railway service.

 

[Exclusive in-depth interviews with Lotte Duty Free, Shilla Duty Free and the KTO can all be found in this month’s May print edition of TRBusiness-Ed].

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