In Markets

Shilla Duty Free downtown stores outperform Korean market

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The Shilla Duty Free posted a +29.0% year-on-year rise in second-quarter revenues for its Korean downtown duty free operations, reflecting a strong rebound from the MERS-ravaged corresponding period last year.

Downtown store revenue climbed to KW538.2 billion (US$473.6 million) for the quarter, with growth outstripping the +23.5% increase in the total Korean duty free market for the period – encouraging news for Shilla given the increase in competitors following last year’s government licence additions.

SEE ALSO: Shilla Duty Free to open store in Phuket

However, Korean airport sales fell -19.2% to KW198 billion (US$174.2 million), driven by a downturn in Incheon International Airport revenues caused by reduced floor space in the wake of last year’s tender results.

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Shilla Duty Free at Singapore’s Changi Airport.

Overseas duty free revenues (principally Singapore Changi Airport and Macau International Airport) rose by +16.3% year-on-year to KW121.3 billion (US$106.7 million). More pertinently, however, Shilla posted a KW12.3 billion (US$10.8 million) operating loss on those operations, reflecting in particular the high cost of entry at Changi.

The offshore losses put a big dent in The Shilla Duty Free’s overall operating profits, which fell -51.4% to KW15.4 billion (US$13.6 million). Even profits on the more lucrative Korean downtown business fell sharply, down -39.0% to KW27.7 billion (US$24.4 million).

A key factor in that decline has been the rocketing costs of commissions to Chinese travel retail agents – up from between 7% and 100% to around 23% since the advent of new duty free retailers last year.

As one leading luxury brand executive told The Moodie Davitt Report, “The real winner in Korean duty free is the Chinese travel agent.”

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