Lotte Duty Free on expansion and diversification
Lotte Duty Free is intent on expansion in travel retail, looking to diversify its portfolio and the creation of an ‘LDF belt’ spanning Asia and the Pacific.
Whether in downtown stores or airport stores, the leading travel retailer plans to offer customers products and benefits that meet their needs and current trends.
According to Jun Young Lee, Head of Strategy & Planning Division, Lotte Duty Free, 2023 marked significant changes in the travel retailer’s overseas operations. In December last year, the Singapore Changi Airport store opened its duplex store in Terminal 3, completing the opening of all 19 zone stores. Lotte Duty Free also successfully re-secured the ten-year business rights for the Brisbane Airport store in Australia.
He notes Lotte Duty Free currently operates 14 stores in six countries, including Japan, Australia, and Vietnam, and is striving to diversify its global portfolio.
Following the post-COVID recovery of airport passenger numbers and tourists, the normalization of store operations and the opening of new stores led to approximately 130% growth in overseas sales in 2023 compared to 2022.
“Lotte Duty Free leverages its operational know-how to offer products tailored to the regional characteristics and main customer group of each overseas store,” Jun Young Lee says. “Based on stable local partnerships, we plan to continuously strengthen our dominance in the duty free markets of various countries.”
He highlights how the opening of a character specialty ‘Ginza Friends’ store in Tokyo, Japan in July, attracted a diverse range of international customers and multiple age groups. He also notes how the Changi Airport store in Singapore is leading the global liquor market by showcasing various pop-ups and limited-edition products through collaborations with renowned brands such as Diageo and Moët Hennessy and that the Oceania region is “also captivating customers through localization in various aspects, including product assortment and store design.”
Jun Young Lee says Lotte Duty Free will increase the share of overseas stores by recovering demand at airport stores and gaining global mindshare.
An ‘LDF belt’ across Asia and the Pacific
Considering regional expansion and Lotte Duty Free’s mix of airport and downtown stores, Jun Young Lee says, “Going forward, we will focus on creating an ‘LDF belt’ that spans Asia and the Pacific by restoring global demand centered on overseas airport stores, and we will focus on internal management that considers profitability rather than simply focusing on external growth.
“Whether in downtown stores or airport stores, we plan to meet customers with products and benefits that align with their needs and trends.”
He also notes the expansion of individual tourism instead of group tourism, with culture and experience becoming more important that shopping. To gradually reduce dependence on Chinese “bundle dealers,” Lotte Duty Free has introduced various marketing activities to attract not only Chinese tourists, but also international individual tourists.
In October 2023, Lotte Duty Free opened its first experiential duty free showroom, and, earlier this year, targeted individual tourists through the introduction of a mileage program allowing customers to receive free gifts with accumulated mileage based on their purchases.
Targeting potential customers
Jun Young Lee expects the trends of small group tours and individual tours to continue. “In line with this, we plan to reorganize our brand line-up to cater to younger tourists and continue to increase experiential contents such as pop-up stores,” he says. “We also regularly invite VIP customers from overseas to attend private yacht parties, fan meetings, and other events to enhance customer satisfaction.”
He details Lotte Duty Free’s reaction to a shift in passenger shopping, especially when it comes to luxury goods. “We plan to steadily increase the sales proportion of other categories such as alcoholic beverages and electronics,” Jun Young Lee says. “The demand for online purchases of alcoholic beverages in the duty free market is continuously increasing, and the sales proportion of the liquor category is expected to grow even further.
“In the first half of this year, the online sales proportion of the liquor category among domestic customers was approximately 80%, and it is anticipated that liquor sales in duty free shops will continue to expand, primarily online. Accordingly, Lotte Duty Free is also working to strengthen our liquor line-up and increase price benefits.”
In the electronics category, Jun Young Lee spotlights the strong performance of massage devices in travel retail. “While massage devices were previously popular mainly among older age groups, they have now emerged as a trendy item among the MZ generation, leading to the release of various new products. This trend is expected to spread to foreign customers as well, leading to continued sales growth in the future,” he adds.
On Lotte Duty Free’s leading position at the forefront of social media in travel retail, its strength in live shopping events and 'entertourment' marketing, Jun Young Lee notes how the travel retailers catches the attention of customers through youth-focused entertainment such as K-Pop bands, family concerts, web dramas, music videos, and more.
In August, Lotte Duty Free hosted a Super Junior fan meeting to attract foreign tourists, offering them a wide selection of entertainment along with duty free shopping benefits. And in June, Lotte Duty Free became the first in the domestic duty free industry to introduce a 'Celeb Shop' in its online duty free store. The platform features products curated and co-purchased by social media influencers.
Moving forward, Jun Young Lee says Lotte Duty Free plans to continue leveraging K-content and social media to provide more customers with the joy of duty free shopping while offering unique experiences.
Sustainability focus
In line with the growing importance of ESG activities globally, Lotte Duty Free regards itself as a leader in eco-friendly management within the domestic duty free industry. The company strives to reduce unnecessary resource waste throughout the entire duty free business process, from delivery sites and logistics centers to offline stores at the customer's point of contact.
Tarpaulin and paper shopping bags have been introduced to reduce plastic waste as Lotte Duty Free works to build eco-friendly duty free stores using solar power generation facilities and electric vehicles. The travel retailer is also introducing eco-friendly paper shopping bags to gradually reduce the use of disposable plastic shopping bags, with plans to reduce the amount of plastic cushioning materials by more than 50% compared to 2019 levels by 2027.
Underlining the importance of leveraging technology and data analytics to enhance customer experience and drive sales, Lotte Duty Free has improved the shopping of convenience of its online platforms by providing product experience services to customers such as virtual fitting services using digital technologies such as AR and VR.
The company has also introduced a ‘mobile passport service,' allowing customers to conveniently shop with their mobile phones without a passport and in July, Lotte Duty Free opened an online liquor specialty store, allowing customers to purchase duty free products along with other items “hassle-free.”
Key priorities for the future
Now, looking ahead to 2025 and beyond, Lotte Duty Free is focusing on profitability rather than simply focusing on external growth.
“We will expand the number of SKU back to 19 levels, which were reduced during COVID-19, and through more advanced management of stock, we will sell products that customers want in a timely manner with better benefits,” Jun Young Lee explains. Lotte Duty Free plans to strengthen its brand line-up by attracting exclusive brands and expanding its stores. Currently, Lotte Duty Free is the only official retailer of popular French fashion brands 'Ami' and 'Maison Kitsuné' in the domestic duty free industry and has exclusive partnerships with renowned jewelry brands such as Chaumet, Fred and Boucheron. There are also plans to boost sales of luxury fashion and jewelry products in addition to cosmetics.
“Although the growth and development of the duty free market over the next few years may vary depending on several factors, we believe that the nationalities and age groups of customers using duty free shops will become more diverse,” Jun Young Lee says. He points out that the nationalities of customers using Lotte Duty Free are increasing, and the purchasing power of both younger and older age groups is also rising.
“Accordingly, duty free shops, including our company, are reorganizing their merchandise composition to target various countries and age groups and are providing a variety of services,” he adds. Duty free shops are selling a wider range of products, including not only cosmetics and fashion brands but also health foods and electronic devices, expanding their product line-up to include lines from high-end to low-end price ranges to satisfy the needs of all customers.