As the exclusive duty free operator at Gimpo International Airport departures, with the commencement of its liquor and tobacco concession at the hub in April, Lotte Duty Free is seeking to stabilise its sales and profits in Korea while continuing to strengthen its overseas business.

Lotte Duty Free’s (Lotte) revenue reached KRW5.91 trillion (approx. US$4.73 billion) in 2022 – an uplift of 1.7% in local currency, compared with the KRW5.8 trillion recorded in 2021.

In the here and now, CEO Ju Nam Kim says that sales are expected to recover from last year, although not to the same level as pre-Covid.

The expected increase in passenger numbers and travel demand worldwide in 2024 is providing the ideal conditions for growth.

“The travel retail industry is expected to be more centred on FIT [Free Independent Travellers] than group tourists this year,” explained Kim. “Lotte Duty Free is planning to strengthen customer attraction factors and customise its services in line with these changes.”

Winning the liquor & tobacco concession (DF2) at Gimpo International Airport is a major feat – the temporary store opened on 17 April and construction of the refurbished store is set to be completed in Q4 2024 – paving the way for Lotte’s exclusive integrated operation of the duty free areas in departures at the Seoul hub.

“We will secure additional sales and profits stably based on the operation of all duty free shops at the airport,” said Kim. “We will also strive to develop overseas business and duty paid businesses to increase sales and lay the foundation for future growth.”

Branching out

A focus on foreign markets is a key part of the strategy. Lotte currently operates 14 stores in six overseas countries and plans to raise its share of international sales outside of South Korea from around 15% to 30% by 2028 [as told to TRBusiness for its Top 10 International Operators 2023 report – Ed]. The aim is to achieve KRW1 trillion in overseas sales this year, based on the normal operation of all global stores.

“In 2024, Lotte Duty Free plans to normalise operations at all of our global stores to attract international customers,” explained Kim. “Passenger traffic at major airports around the world is returning to pre-Covid-19 levels. We are mapping out sales strategies that fit the characteristics of each region and customer group.

“Furthermore, we will achieve economies of scale in our overseas stores, especially at Changi Airport in Singapore, to secure cost competitiveness to provide greater benefits to our customers and strengthen profitability.”

The plan is to increase the share of its overseas stores by capturing shopper demand as it continues to build, aided by bolstering global awareness of the company.

“At our main overseas store at Singapore Changi Airport, we will continue to strengthen our liquor lineup and introduce various pop-ups through collaboration with brands,” he added. Changi is Lotte’s largest overseas duty free space with 19 stores covering a total of 8,000sqm.

“Since the grand opening, average monthly sales have increased slightly compared to the previous year, but we’re aiming for higher sales,” revealed Kim. Ensuring shoppers are engaged with a variety of products and a distinctive duty free shopping experience is vital. The robotic bartender and smart dispenser-made cocktails and whisky are proving especially popular while the pop-up stores for liquor brands have also been well received.

“With the Changi Airport store as our base, we plan to establish ourselves as a global travel retailer, leading the global liquor market with over 430 brands including single malt whisky, wine, cognac, vodka and more,” said Kim.

Gains in Oceania

Looking further afield, Lotte is continuing to intensify its business in Oceania. The Melbourne Airport tender win, to deliver the duty-free experience across the international terminal’s 3,600m space from 31 May 2023, cemented Lotte’s position as a leading travel retailer in the Oceania region.

Now with a 10-year duty free concession at Brisbane Airport (from 1 February 2024) under its belt, Lotte is expanding its product lineup to suit regional characteristics, and is conducting marketing activities across all categories to maximise opportunities.

“The Oceania market, where the competition among global players is intense, has been our strategic priority,” said Kim. “As an existing operator in Oceania, we are leveraging our understanding of the region and customers [and have] successfully bid for Brisbane Airport. We plan to implement marketing activities and promotions that reflect the diverse preferences of each individual customer.”

Deeply understanding the state of play is crucial in crafting the right approach. “Currently, the Oceania market is in the recovery phase of Covid-19, with passengers up about 30-40% year-on-year, and a smooth sales increase is expected this year,” said Kim. “Nowadays, we are planning various collaborations with Tourism and Events Queensland to promote Brisbane tourism to Koreans.”

Assessing future bids Whether Lotte will enter new overseas markets beyond its current locations along the Asia Pacific duty free belt – spanning Korea, Japan, Guam, Singapore, Vietnam and Oceania (including Australia and New Zealand) – is to be confirmed, but the foundations for expansion are being firmly set.

“Currently, we plan to focus on the stabilisation and growth of our global business,” said Kim. “However, through this year’s reorganisation, we renamed the Global Business Group as the TR Business Innovation Group and put the overseas business and new business development divisions under the same organisation to achieve the best synergy. Although we cannot comment specifically yet, we are continuing to develop new business at home and abroad.”

For now, the company is drawing on its expertise in product sourcing, as well as its operational know-how, to help ensure its stores are in line with trends, that new brands are introduced and the shopping experience evolves to become even more convenient.

“In addition, Lotte Duty Free plans to realise economies of scale in overseas business through the operation of hub airports around the world, and if there is a good deal, we will participate in a new bid at a level where we can secure profitability,” said Kim. “Furthermore, we are planning to diversify not only our duty free business, but also our duty paid business model that takes into account the characteristics of each country.

“Finally, in overseas stores where Lotte Duty Free operates, Chinese tourists are the main customer base, so we are also planning to reorganise stores and expand categories to cater to them.”

Battling shrinking sentiment

Circling back to South Korea, Lotte says the recovery trajectory of travel retail in the country, following the pandemic, is “not as fast as expected compared to other industries”.

“This is because consumer sentiment has shrunk due to unstable international circumstances and inflation; this trend is likely to continue in 2024,” elaborated Kim. “However, as the number of passengers at Korean airports and foreign tourists visiting Korea continues to increase, we expect sales to recover faster than last year.

“China is expected to implement various economic stimulus policies as it has set its GDP target at 5% in the two sessions this year,” he continued. “Accordingly, Lotte Duty Free will also intensify Chinese-preferred brands and offer various purchase benefits in preparation for the group and individual tourists from China.

Sales from other foreign tourists, such as those from Japan, Taiwan, Thailand, and other countries, have been steadily increasing, so we expect to see an increase in sales from these customers as well.” The demand among Koreans for overseas travel is also on the rise, says the retailer, with the number of overseas flights increasing.

“Accordingly, it is expected that Korean consumers’ use of duty free shops will be more active,” said Kim. “Lotte Duty Free also plans to strengthen marketing activities such as organising special exhibitions and offering special discounts on our online duty free store.”

Spirits e-store success

The success of Lotte’s online spirits store reflects the strong demand among Koreans for the category.

“Lotte Duty Free launched its online liquor store last July and the shop has already become the biggest in Korea’s domestic duty free industry, with 1,200 products as of this February,” said Kim. “The proportion of Koreans [accounting for] Lotte Duty Free’s online liquor sales is more than 80%, which is higher than other categories. In line with this, we plan to hold an online liquor exhibition every month to showcase a variety of products and identify our liquor lineup in line with rapidly changing trends.

“In 2024, we will expand sales volume by developing a strategy to increase our brand awareness, not only for Korean consumers but also for foreign consumers.

“The popularity of whisk(e)y in South Korea rose during the pandemic and the trend is set to continue. According to Korea Customs Service, whisk(e)y imports increased 13.1% year-on-year in 2023, and the top three brands in Lotte Duty Free’s liquor sales last year and this year are all whisk(e)y brands,” revealed Kim.

“The popularity of whisk(e)y is likely to continue this year, as there is a large difference between the retail price in Korea and the duty free price. Through collaboration with brands, we plan to strengthen trendy liquor categories such as cognac, brand, and sake, as well as single malt whisk(e)y, which was popular around the world in 2022-2023.”

Lotte Duty Free’s recent MOU with Taiwan King Car Group, which looks after brands including Kavalan and Buckskin, demonstrates its goal to solidify partnerships with global brands. Diversifying customer base Zooming in on the evolving preferences of travelling consumers, including the shifting focus to FIT, highlights Lotte’s overall goal is to diversify its customer mix so as not to rely on any one particular segment moving forward.

“In the duty free industry, individual tourism expanded instead of group tourism and culture and experience became more important than shopping,” explained Kim. “In order to gradually reduce our dependence on Chinese bundle dealers, we have been conducting various marketing activities to attract not only Chinese tourists, but also international individual tourists. In October 2023, we opened South Korea’s first experiential duty free showroom. Earlier this year, we introduced a mileage programme that allows customers to receive free gifts with accumulated mileage based on their purchases, attracting the attention of individual tourists.

“In 2024, the trend for small group tours and individual tours in China is expected to continue,” he added. “In line with this, we plan to reorganise our brand lineup to cater to younger tourists and continue to increase experiential concepts such as pop-ups. “Furthermore, we offer personalised shopping suggestions based on customers’ purchase and product search histories online, making it easier for customers to find products that suit their tastes. In fact, many of these recommendations are leading to actual purchases, so we will continue to incorporate these digital technologies into our sales.”

The bigger picture Lotte’s roster of recent pop-up stores, such as for Zanmang Loopy and the LDF Star Photo concept, reflects how tourists are focusing more on the experiential.

“In addition, as the prolonged economic recession has reduced the number of large purchases of expensive cosmetics and fashion products than before, we are also focusing on entering mid- to low-priced brands,” revealed Kim. “Plus, we are working to provide price benefits by creating exclusive duty free products.”

As for what the future holds, Lotte is working on activating various new businesses, such as the Ginza Japan Direct Purchase online store and overseas shipping, which can be used by those living abroad (outside of Korea).

“Through challenges and growth in these various businesses, Lotte Duty Free will continue to grow as a comprehensive travel retail company, not just a duty free operator,” said Kim. “Beyond selling products, Lotte Duty Free contributes to the development of the Korean tourism industry by providing global customers with a joyful journey through a differentiated shopping experience. Strengthening the virtuous cycle of tourism and retail is always our first priority.”

This feature first appeared in the TRBusiness May 2024 issue, as part of the annual Leading APAC Operators report. Click here to read the ezine.

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