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Shilla travel retail profits fall sharply in Q2

Shilla Hotel travel retail - Retail in Asia

Hotel Shilla’s travel retail division posted a decline of -8% in Q2 sales year-on-year to KW790 billion (US$708 million), while operating profit in the division fell by -47% to KW8.2 billion (US$7.3 million).

Within Korea only, duty free sales hit KW658.9 billion (US$590 million), down by -10.5%.

The business has been hit by the collapse in Chinese tourism since mid-March due to the THAAD dispute with China, as well as soaring tour group agency commission rates, although these eased in comparison to Q1 (see table) and were welcomed by the market (see below).

SEE ALSO : Shinsegae Duty Free lands fashion & accessories contract at Incheon Airport T2

Consolidated downtown duty free sales hit KW481.9 billion (US$432 million) in the quarter, while airport sales were KW308.1 billion (US$276 million).

In its earnings release the company said it would benefit from its increased competency as a global travel retailer “through continuous expansion in foreign markets” and from the “stabilisation of current operations”.

SEE ALSO : Korean online shopping growth surge as retail sales stumble

We believe this was largely due to strong inflows of resellers attracted by the domestic duty-free channel’s superior merchandising quality and competitive prices amid strong underlying demand.

While Chinese resellers have typically posed a burden on profits via travel agent commissions and bulk purchase discounts, we believe successful overhauls in the commission structure helped boost OP margin to 2.8% (+0.2%p quarter on quarter) and hence served as the primary driver behind the quarter’s earnings surprise.”

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