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Lotte Duty Free executives return 10% of their salary to ease China tourism crisis

Incheon Airport South Korea Seoul News - Retail In Asia

More than 40 senior Lotte Duty Free executives have volunteered to return 10% of their salaries this year to help ‘revitalize’ the company, boost cost-reduction and fight ‘excessive competition’ in the market – including what the company describes as challenging airport contract profitability.

According to a statement, these are just some of the key resolutions agreed at a recent summit meeting led by Lotte Duty Free CEO, Jang Seon-wook. The world’s number two duty free operator said the aforementioned measures were agreed at a Management Strategy Meeting, where executives discussed ways to help overcome ‘corporate crises’. This gathering’s discussions included encouraging and incentising other visitor nationalities from south-east Asia to travel to South Korea to replace lost Chinese tourists, with various ideas discussed on how this might be achieved.

The company said: “In addition, we discussed ways to revitalize sales at seven overseas stores, including Japan, as well as various cost-reduction measures.”

Meanwhile, Lotte Duty Free management said that those senior executives who have decided to return a portion this year’s salary have an average of more than 15 years of experience and all are tax-exempt veterans. Most have also apparently worked at the company throughout the testing times posed by the SARS (2003) and MERS (2015) crises.

They have obviously added huge experience to these ‘regular strategy meetings’ which were introduced by President Jang Seon-wook last year to help the company react much faster to changing events in the marketplace and coordinate measures. According to the statement from Lotte, Jang Seon-wook also wrote a letter to employees last year (dated December 12), which sought to explain the current crisis and convey the company view that it expects the crisis ‘to be prolonged’.

Jang Seon-wook stated: “The decline in sales is a shock that has been unprecedented since the founding of Lotte Duty Free in 2003, except for the SARS crisis.” “In particular, the number of foreigners using duty-free shops in Korea dropped by 46 percent in April compared to the same period last year.

Interestingly, Lotte Duty Free added that according to a survey of foreign tourists by the Korea Tourism Organization (KTO) last year, the average time it takes for foreign tourists to visit Korea is 2.7 months. This represents the time they take their decision to book and when they actually physically travel.

As such, the inference is that ‘due to the nature of the tourism business’, many will still be basing decisions to visit alternative destinations on the tensions that still prevail in South Korea today.

As such, Lotte is clearly suggesting at best that the market is still likely to face pressures on visitor arrivals for several months to come yet.

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He then called upon his colleagues to draw strength from more than three decades of success at the company and urged them to concentrate all available ‘internal capabilities’ to tackle the crisis and push forward to make Lotte Duty Free the number one duty free retailer in the world.

In a rallying call, Jang Seon-wook also pointed to the way that the company had overcome the loss of the World Tower duty free contract and then fought to reacquire the contract last year. This was an example of how everyone can pull together, he said.

He also suggested that more of this same spirit – along with wisdom and enthusiasm – could help Lotte Duty Free to take the number one global duty free operator spot [presently held by Dufry-Ed].

SEE ALSO: Lotte Duty Free to take measures facing China tourism crisis

Turning to the marketplace as a whole, the recent meeting also heard what most attendees already knew with the news that the domestic tourism industry has suffered due to the situation of ‘zero’ Chinese tour group tourists – excluding FIT visitors who continue travel outside the often rigid control of ‘organised’ tours.

Lotte Duty Free said that according to the Korea Tourism Organization (KNTO) the number of foreign tourists visiting Korea decreased 26.8 percent year-on-year in April, and tourism revenues also dropped 28 percent YoY.