Lotte eyes staff pay cuts; ’emergency recovery plan’

By Luke Barras-hill |

Lotte Duty Free has announced a move into emergency management, ushering in workforce productivity improvements through company-wide restructuring and performance enhancement training, among several measures.

[UPDATED] Lotte Duty Free says it will enact several emergency measures in a bid to streamline its organisational structure and improve financial performance.

These include restructuring high-intensity business units, slimming down its workforce and a declared cut of 20% across executives’ salaries, according to an announcement made today (25 June).

It is gathered a voluntary retirement plan is also under consideration.

Lotte says the ‘emergency management declaration’, revealed by CEO Ju Nam Kim in a circular to employees via the company’s bulletin board, is designed to ‘lay the foundation for a rebound’.

The decision has been taken in view of contracting consumer sentiment post-Covid, exacerbated by the global economic downturn and coupled with the challenging landscape faced by South Korea’s domestic duty free industry, burdened by inflation, high exchange rates and shifting consumption trends.

Profitability ‘deterioration’

When asked what the organisational ‘restructuring’ will mean in real terms to the future of the Lotte Duty Free business and its staff numbers and whether the South Korean travel retailer is considering mass staff redundancies and layoffs, a Lotte Duty Free spokesperson told TRBusiness: “We are planning ‘voluntary retirement’ for all positions starting in the second half of this year. The specific size has not been determined.”

TRBusiness understands that the number of voluntary retirements implemented in the second half of 2022 amounted to around 20 people, but that number will likely be larger this time.

On whether Lotte will look to downsize its flagship Myeondong and Jeju and Busan downtown operations, together with its footprint at Incheon International Airport, the spokesperson added: “We cannot reveal specific downsizing plans yet. It is expected to be phased in for stores with low sales efficiency.”

Ju Nam Kim, CEO, Lotte Duty Free stated: “We have endured a difficult time since the pandemic with expectations for market recovery, but growth has stopped and profitability has deteriorated due to high inflation, high exchange rates, and rapid changes in the external environment.

Lotte Duty Free

Ju Nam Kim, CEO, Lotte Duty Free is confident in the company’s ability to overcome crises.

“We want to overcome the immediate crisis and create a foundation for a rebound through a pre-emptive emergency management system change.”

One such measure is said to be the stabilisation of profits through cost reductions and enhancing the competitiveness of its Lotte World Tower store by concentrating on improving customer flows.

As a result, the company has decided to reduce the size of its Tower store on the branch’s 19th floor that was expanded to cover 4,599sq m in June 2017 in response to increased customer volumes, notably from the Chinese.

Lotte is not an outlier with respect to the aforementioned market challenges; continued turbulence in South Korea’s duty free landscape manifested in part by the continued paucity of high-spending Chinese travellers has beset rivals The Shilla Duty Free, Hyundai Duty Free and others.

In the case of Lotte and Shilla, overseas markets have been highly prized in recent years, with a spate of concession victories and renewals between them.

Revenue of KRW5.91 trillion (approx. $4.73 billion in 2022) resulted in Lotte dropping to fourth place behind The Shilla Duty Free in the TRBusiness Top 10 Operators ranking, with the continued stubborn growth in Asia markets putting it some way short of its pre-Covid (2019) KRW9.93 trillion result.

“I believe in Lotte Duty Free’s ability and ability to overcome crises as a market leader that we have built over the past 45 years,” added Kim.

“If we quickly innovate our management structure and prepare for the future in a changed market, our status as a 100-year-old company will be enhanced and our pride will shine brighter.”

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