Lotte Duty Free has formally confirmed to TRBusiness today that it is ‘seriously’ considering pulling its entire operation out of Incheon International Airport, due to the combination of ‘conflicts regarding THAAD’ and the ‘high’ rentals it claims were already in place.

 

“We are considering the pull-out option seriously,” said an official Lotte Duty Free spokesman within a brief statement to TRBusiness. “Since it will not be feasible to retain the operation in this situation, mainly due to conflicts regarding THAAD. It is true that the rent was high before also.

 

COLLAPSE IN CHINESE NUMBERS IS TO BLAME…

“We used to be able to afford the rent with the profits of downtown stores. However, the number of Chinese visitors dropped drastically as [the] Chinese government banned tour visits to Korea and the number of downtown duty free operators increased, because [the] Korean government added downtown licenses in [the] last few years.

 

“Under these unpredicted and uncontrollable circumstances, we decided that we will not be able to continue our operation this way. Of course, it will be best if IIAC [Incheon International Airport Corp] and airport duty free operators including LDF come up with reasonable conclusions through negotiation, but if that is not possible we believe that there won’t be any other option left.”

 

As reported repeatedly by TRBusiness, this is a very different year compared with the record performance achieved by Lotte Duty Free in 2016.

 

SALES UP 36% LAST YEAR….

Last year the company’s total duty free sales in South Korea reached US$5.7bn – up 36% on 2015 – with the vast majority of sales made through its downtown store network

 

At stake with the airport business are four major concessions which were awarded to Lotte Duty Free at Incheon International Airport in 2015. Here, duty free sales reached almost $1bn last year, according to comments made exclusively to TRBusiness in Seoul earlier this year by Kim Te Ho, Managing Director of Lotte Duty Free’s Merchandising Strategy Division.

 

LOTTE’S INCHEON CONTRACTS…

These contracts include the operation of perfume and cosmetics and liquor and tobacco businesses, plus the entire Incheon Airport concourse and the main terminal central departure area fashion concession that includes the Louis Vuitton boutique.

 

Lotte is also the exclusive operator in Incheon Airport of the 13 luxury brands in the central boutique area. These include Louis Vuitton, Prada, Cartier, Gucci, Bulgari, Omega, YSL, Bottega Veneta, Burberry, Salvatore Ferragamo, Tumi, Tiffany and Tumi.

 

Elsewhere in Incheon Airport, Lotte operates all 19 duty free shops in the Incheon Airport concourse terminal, which is connected to the main terminal by a shuttle rail service.

 

[With additional contributions from TRBusiness’ Asia Correspondent, David Hayes].