Lotte Duty Free posts $26.1-M quartery loss, first in 14 years

SOUTH KOREA – Lotte Duty Free posted an operating loss of 29.7 billion won ($26.1 million) in the second quarter – its first quarterly loss since the SARS crisis of 2003.

A company spokesperson said the loss had been driven by the slump in Chinese shoppers because of the dispute between South Korea and China over the former’s deployment of the US anti-missile system THAAD earlier this year.

South Korea, and Lotte in particular (due to the siting of the system on Lotte land), have suffered a ferocious backlash from China, including a ban on group tours.

The Lotte Duty Free spokesperson said other “crucial” factors that had hurt profitability included a 20-fold increase of the duty free license annuity (from 0.05 percent to one percent of turnover) and the heavy concession fees payable at Incheon International Airport.

“Since the THAAD impact does not seem likely to be resolved soon, we project that the duty free business in Korea, including Lotte Duty Free, is going to suffer for some time,” the spokesperson concluded.

Regina Hahm, equity analyst at Mirae Asset Daewoo Research Center, told The Moodie Davitt Report that Lotte’s profitability would have been severely eroded by the collapse in FIT travellers, with the retailer’s Sogongdong flagship store particularly vulnerable.

“From my understanding, the Sogong-dong store has had the biggest contribution of independent travellers’ sales among all Seoul downtown stores,” she said. “And independent travellers undoubtedly generate higher profitability than package group travellers as they don’t incur agency commissions.”

Chinese visitor arrivals fell by 41 percent yearon-year in the first half to 2,252,915, according to the latest Korea Tourism Organization figures. The downturn has been felt since March 15, when China imposed the ban on group tours to South Korea, prompting a 40 percent year-on-year fall in Chinese arrivals in March, a calamitous 66.6 percent decline in April, a 64.1 percent slump in May and a 66.4 percent decrease in June.