Shilla duty free sales for the first nine months of 2012 at W1,422.5 billion (US$1.31 billion), up by +34% on the same

SOUTH KOREA. Hotel Shilla has reported duty free sales for the first nine months of 2012 at W1,422.5 billion (US$1.31 billion), up by +34% on the same time last year. The result was announced as Shilla prepares to commence its first international duty free operations in Singapore and Malaysia next year. And recent reports reinforce the group’s new global ambitions.



Sales at Shilla’s flagship Incheon International Airport concessions grew by +36.7% to W233.5 billion (US$215.2 million) for the quarter, while its other duty free operations – at Gimpo, Cheongju and Daegu airports and downtown in Seoul and Jeju – grew by +18.2% to W283.1 billion (US$260.9 million). Total duty free sales grew for the quarter by +25.9% to W516.6 billion (US$476.1 million).

The result reflects continued strong growth throughout 2012 as a result of the opening of the Shilla-operated Louis Vuitton store at Incheon International Airport last year, as well as its new business at Gimpo Airport, where Shilla captured the fragrances and cosmetics contract from rival Lotte Duty Free in March 2011.



Shilla's late 2011 opening of the first Louis Vuitton airport store, at Incheon International, has spurred sales significantly
Shilla’s new businesses in Malaysia and Singapore are expected to have a big impact on sales next year. As reported earlier this month, the retailer won contracts to operate two stores at the new klia2 terminal at Kuala Lumpur International Airport from April 2013. And it secured fashion and fashion accessories concessions at Singapore Changi Airport earlier this year.

And Shilla’s ambitions do not end there. In a recent article in the Korea Times a Shilla spokesperson said: “Using our success at home as a springboard, we will continue to expand our presence abroad…We will move into China, Europe, North America and other parts of the world to become one of the global top five duty free operators.”

Shilla was ranked eighth among the top 25 travel retail companies by turnover in 2011, according to The Moodie Report Research.


Artist's impression of klia2, where Shilla will operate two of its first duty free stores beyond South Korea
Despite its success in South Korea, operating profit for Shilla’s duty free business was below expectations, at W28.7 billion (US$26.5 million). The recent strong won affected profit on the sale of goods purchased before the currency strengthened. And a surge in agent and commission costs – normally representing around 4% of annual duty free sales – was driven by strong competition for Chinese travellers over the Chinese Mid-Autumn Festival and National Days.

The recently relaxed visa requirements for Chinese visitors are expected to boost Shilla’s duty free sales in 2013, with visitors from China, Taiwan and Hong Kong expected to account for 34% of sales next year. The impact is likely to be stronger at Shilla’s downtown shops.


The tender for space formerly operated by Korea Tourism Organization at Incheon International Airport offers another opportunity for Shilla to grow sales on its home front
Territorial disputes and the lower won/yen exchange rate are likely to prompt decreasing numbers of Japanese visitors, and their contribution is expected to fall to about 18% of sales next year. At present Chinese shoppers spend an average of US$960 at Shilla’s duty free shops, compared to US$550 for Japanese visitors.

Several other factors are likely to affect Shilla’s duty free business over the coming year, including the recently reported tender for Korea Tourism Organization’s previous retail space at Incheon Airport as well as the issuing of more than 10 new downtown duty free licenses for which Shilla and Lotte will be ineligible, as reported previously.