Incheon Airport tops duty free sales globally


Louis Vuitton conducted an unprecedented experiment in Korea last year, opening its first airport store at Incheon International Airport.

The French fashion house with 158 years of history had long refused to be situated at any airport, citing difficulties in offering the best shopping experience to its customers.

The airport’s quality facilities and services aside, the luxury ambience of Korean duty free shops and the geographical proximity to the soaring Chinese market were too perfect to ignore even for the luxury brand.

At the time local retail giants engaged in fierce competition to win the business rights and the final winner Hotel Shilla is currently enjoying a sales boom at its 550 square-meter mega store.

The decision of Louis Vuitton explains why the local travel retail industry shows no sign of abating despite the economic slowdown in Korea and abroad. In 2011, the 4 trillion won ($3.5 billion) market grew almost 20 percent compared to the previous year.

A Lotte Duty Free store in Sogong-dong, central Seoul, saw its sales exceed the 1 trillion won mark last year, the highest-ever figure at a duty free shop here.

Located near Seoul’s busiest shopping district Myeong-dong, the store logged 1.023 trillion won in sales, more than double the 500 billion won in 2008.

The total sales of Lotte Duty Free, the No. 1 duty free chain in Korea and sixth globally, amounted to 2.7 trillion won, a 17.4 percent increase from a year earlier.

Koreans still make up more than half the total travel retail sales as they favor duty free shops for luxury shopping. In recent years, however, a growing number of travelers, especially from China, have been fast overtaking the sales to locals.

Since Japan, another popular shopping destination among Asians, was hit hard by the March earthquake, many Chinese are flocking to Korea to purchase high-end goods.

“Despite a some 10 percent decrease in sales to Koreans, a sales surge in Chinese tourists from 8 percent to 15 percent was enough to offset the losses,” said Kim Joo-nam, a spokesperson for Lotte Duty Free.

“Sales to Japanese also started to recover in the latter half of the year. And the trend, coupled with the super-strong yen, is expected to continue this year as well.”

Korean duty free shops, growing based on local consumers’ luxury fever, offer premium services that are rarely seen in other countries, according to Kim.

In the case of Lotte, which aims to become the world’s No. 1 duty free retailer by 2018, its unique marketing campaign featuring a group of the nation’s top actors and singers has also been effective in attracting K-Pop fans in Asia, he added.

Last year, duty free sales at Incheon Airport also hit a record high of $1.26 billion, beating the long-time leader Dubai International Airport that earned $1.16 billion.

Incheon Airport houses 70 stores of some 400 brands under the unified brand name Airstar Avenue representing Lotte Duty Free, Hotel Shilla and the Korea Tourism Organization.

The east and west wings of the airport building sell cosmetics, wine and tobacco, while the center area is filled with boutiques of designer brands for the convenience of luxury shoppers.

The airport projects this year’s sales could amount to $1.5 billion.

Even though foreign luxury brands are still dominant players in sales, a growing number of Korean brands are enjoying a greater share of the local travel retail market.

At Shilla Duty Free, the best-selling cosmetics item is Sulwhasoo, the high-end herbal medicine cosmetics brand of Amore Pacific, the nation’s No. 1 beauty company. Duty free sales of Sulwhasoo have increased to make up 17 percent of its total global sales last year, with the brand gaining popularity especially in China and Japan.

“Our brand’s global awareness is growing through duty free sales. We can also check the beauty trend among global customers to set a strategy for overseas markets,” said Lee Yoon-ah, an Amore Pacific official.

Korean companies also expect they will have more opportunities to be exposed to international customers as local travel retailers are eyeing overseas operations.

Lotte plans to open two duty free shops in Jakarta Soekarno-Hatta International Airport on Jan. 31 and it is also waiting for the bidding results for Hong Kong International Airport and Los Angeles World Airport.

With Hotel Shilla, the second player in Korea and 10th globally, also joining the bidding wars, the international deals are likely to become a competition between two local rivals, industry sources said.

If anyone wins the bidding in particular for LAX, which is a U.S. airport most visited by Asian travelers, the company could take an early edge for global expansion.

More than 8 million people visit the airport and its retail sales amount to $117.54 million. The final bidder will be selected in June.

By Lee Ji-yoon (jylee@heraldcorp.com)