The Shilla Duty Free (Shilla) has reported a ‘stable’ performance in the first month of operation at Seoul Incheon Terminal Two.

As reported, Shilla secured the 2,105sq m perfumes and cosmetics concession, while Lotte Duty Free won the liquor, tobacco and packaged foods contract last year.

Shilla has a proven track record when it comes to operating perfumes and cosmetics stores in Asian airports such as Seoul Incheon itself and Singapore Changi.

SATISFYING PERFORMANCE

A Shilla spokesman told TRBusiness: “Terminal two is generating sales equivalent to half those generated in T1. In other words, T2 sales comprise around one third of total Shilla sales at the airport.

“Considering the number of passengers travelling through T2, performance is quite satisfying and even exceeding the expected level.”

The stable performance is down to powerful brands, differentiated customer experience and excellent service, according to the spokesman, who added: “Increased outbound travellers support organic growth at Incheon, however, it’s safe to say know-how and understanding of the airport duty free channel and its customers allows us to capitalise on increasing passenger numbers.”

KEY CONTRIBUTOR

Pressed by TRBusiness, to pick one single variable which has contributed most to the positive first-month performance, the spokesman emphasised Incheon International Airport Corporations’s extensive effort on the preparation and promotion of the T2 duty-free stores.

Such praise will be music to the ears of all at IIAC which has had its hands full following, Lotte’s decision to withdraw three of its four concessions in T1 due to the “burden of rent increases” and plunging Chinese tourist volumes, as reported by TRBusiness (13 February).

The spokesman, who refused to comment on the T1 situation and what if anything Shilla might do in the aftermath, commented: “All Shilla’s efforts including brand assortment, successful launch of six branded flagship shops (Chanel, Dior, SK-II, Estée Lauder, Lancôme and Sulwhasoo) and optimal store and retail offering based on the ‘beauty paradise concept’ have jointly contributed to the positive initial performance.”

SURPRISE FACTOR

With no Chinese carriers operating out of T2, which houses Korean Air, Air France and Delta, Shilla has been surprised by the high numbers of Chinese passengers passing through.

As reported in May 2017, Incheon International Airport Corporation (IIAC) Commercial Marketing Group Bum-Ho Kim revealed the THAAD missile crisis had a marked effect on the bidding process for the T2 contracts, with operators conscious of the decline in Chinese arrivals to South Korea.

According to the latest figures from the Korea Tourism Organisation (KTO), Chinese arrivals were down -37.9% to 332,474 in December, equating to 29.3% of the total.

While this was an improvement on the previous months (-42.1% in November, -49.3% in October and -56.1% in September), the current situation remains uncertain.

With that in mind, operators who factored into their proposals the anticipated decline in Chinese numbers as a reason for not bidding on the contracts, will arguably still feel vindicated in their decision not to participate in the tender.

On the flip side, with ‘normal relations’ seemingly progressing between China and South Korea following the summit meeting with Chinese President Xi Jinping in Da Nang, Vietnam, as reported last December, the larger than expected sales contribution of Chinese passengers in T2 may not be deemed so surprising after all.

The spokesman said: “Chinese passengers are becoming one of the most important customer segments at Incheon T2. The nationality has always been one of the most valued segments for Shilla and their importance has never been neglected regardless of store location. Our Incheon T2 offerings are also meant to cater to their demands so major tweaks are not required so far.”

Further speculating on the unexpected high numbers of Chinese passengers travelling through Incheon T2 and stronger than expected sales among Chinese consumers, the spokesman again expressed his surprise at how things have panned out, taking into account there is no Chinese airline operating out of T2 as mentioned.

Offering a possible explanation he said: “Chinese travellers flying with foreign airlines seem to have strong purchasing power. More specifically, the Chinese New Year holiday also calls for high demand on gift purchases which is elevating sales even higher.”

SPEND PER HEAD

With spend per passenger among Chinese consumers in the terminal expected to overtake South Koreans and the gross sales portion of Chinese consumers likely to increase, staying ahead of the game is vital. “To capitalise on the strong presence of Chinese customers, Shilla is monitoring latest trends and buying patterns at the airport and providing brands most demanded by customers.”

Shifting customer preferences and trends are indeed the biggest challenges facing Shilla in T2. “Presenting a beauty assortment in line with latest trends might well be key to ensuring successful business in the new terminal, but it is not only about assortment. Satisfying customers’ evolving expectations in terms of in-store experience is another important aspect.

“Shilla must keep providing an interesting and exciting beauty shopping experience to ensure constant high passenger traffic. Customer needs are quickly changing from consumption to experience so Shilla must adapt to this in order to thrive in Incheon T2.”