Bigger and better
When one looks at the numbers, it is no surprise that the Incheon International Airport Corporation (IIAC) tenders are generating such interest in Korea as well as abroad. Worth some $900 million in 2006, the travel retail business at Incheon is Asia’s largest single location. International passenger movements rose by 8.1% to 27.66 million last year, and according to Korea National Tourism Organization (KNTO) statistics, Chinese passengers into the airport are consistently on the rise.
“Incheon International Airport’s driving purpose has been to become a genuine transportation hub for North East Asia. The total number of aircraft flights in 2006 has increased 13.2% compared to that of 2005,” comments IIAC director of retail marketing group Kwang-Soo Lee.
As for commercial revenues, duty free has recently been setting highest-ever monthly sales volumes. IIAC has pushed a variety of promotional activities to boost the sales volumes and to build relationships with retailers.
Duty free concessions at IIA are composed of four retailers – DFS, KNTO, Hotel Lotte and AK Duty Free – but the contract term expires in February 2008. The upcoming tender will include additional space in the new Concourse A, which is set to open in July 2008. “Since duty free concessions occupy a major source of IIA’s commercial revenues, IIAC has made every endeavour to select competitive duty free retailers by June 2007,” says Lee.
All four duty free retailers have made a good profit since their openings in 2001, so they all intend to participate in this year’s bid, notes Lee. Except for the existing duty free retailers, other domestic duty free retailers intend to take part. At the time of going to press, ultimate decisions on duty free bidding procedures had not yet been made, so IIAC has not had any preliminary discussions with its existing retailers and other interested parties.
But interested parties there are. IIAC confirms that “many international companies”, including King Power (HK), Aelia, Aldeasa, Heinemann, Dufry and Nuance Watson (HK), are considering participating in the bid. “IIAC has encouraged international as well as local companies to take part in order to select world-class commercial retailers,” Lee explains.
The decision is being guided by the key concept of ‘Star and Star Life’ that IIAC has determined will be behind all commercial facilities in the second concourse. The mission is to create unique commercial concepts and relocate commercial facilities in preparation for the completion of Concourse A in June 2008, as Lee relates: “IIAC’s major business priority for 2007 should be to select superior commercial concessionaires in duty free, F&B and other commercial facilities, which provide quality service and increase non-aeronautical revenues, and to relocate commercial facilities suitable for the new Star & Star life concept.”
South Korea’s remarkable volume of travel retail trade is reinforced when one turns to the country’s south and its second city, Busan. Here, Paradise Duty Free is the dominant regional player, leveraging its links to the hotel and casino interests of the Paradise group.
On September 15, Paradise officially opened its new store inside the Paradise Hotel, more than doubling (to 7,300sqm) the space of its old site opposite the hotel. Jin Mo Kim, Paradise Duty Free’s executive manager merchandising division, says that the outlet is effectively a department store – the biggest duty free outlet in Korea – and has contributed to a 40% year-on-year increase in company sales for Q1 2007.
Occupying four floors, Paradise Duty Free is organised around the Ocean Water design concept, using lines and colours that reflect the marine environment. Its third floor boasts the large Ocean View customer lounge; on the second floor, cosmetics enjoys enough space for each boutique to have a
service area where customers can relax and try make-up. Kim says that the level of service is enhancing customer loyalty, encouraged by activities like hosting artists and art exhibitions.
“The space in the store has allowed us to introduce many new brands, and our customer profile is changing a lot nowadays with more and more Korean customers. Japanese used to be the main customer group but today it is outbound Koreans,” Kim notes. “With the weak yen, more Koreans are travelling by air and sea to Japan.”
Those customers are drawn mostly from Busan but also the surrounding area including the cities of Ulsan and Taegu. Paradise runs several buses twice-weekly to Taegu, shuttling customers to and from the shop. The leading category preference has shifted in recent years with ready-to-wear now a popular category, ahead of bags, cosmetics and perfume. Until now, the latter two categories have not felt much impact from the LAG restrictions, but Kim still acknowledges the need to remain watchful about changes in regulations.
More space enables Paradise Duty Free to strengthen its promotional plan and support the fashion category. “We even had a fashion show inside the shop,” Kim recounts.
Paradise is interested in participating in the Incheon bid too, and Kim recognises that competition will be intense. “This is a really big year for duty free operators; everyone is looking for a chance not only at Incheon but also for the new terminal at Busan Kimhae Airport – not to mention what’s going on at Singapore or Hong Kong.”
Indeed, Korean companies like Hotel Lotte Duty Free are beginning to take a high-profile role
outside their home market (see pages 39-40 for more information).
Still, the Korean home market offers useful niches, including that provided by the ‘domestic duty free’ regime governing Jeju Island. Jeju Development Corporation’s JDC Duty Free achieved a 10% increase for Q1 2007 compared to Q1 2006; and for all of 2006 its $190 million in turnover was 26.7% up on 2005. The business, built on golf tourism and older couples taking holidays, has been fortunate in that there are no restrictions on travelling with liquids and gels between the mainland and the island.
Oh-Jung Kwon, who was recently promoted to managing director of the sales department, now plans to renew the retail offer. “I expect to increase revenues more than 10% over last year, but it might be a tough year for me because we have achieved big growth every year,” he admits.
With the Korean economy set to maintain GDP growth close to last year’s 5%, the immediate prospects are for more of those outbound travellers to be spending generous amounts at checkouts in the nation’s big, bright new stores.
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