[Interview] "Profitable from the first year of opening... Lotte Duty Free to increase Vietnam share to 35%"

Interview with Kim Ki-kyung, Head of Lotte Duty Free Vietnam

Unprecedented Profit from the First Year of Da Nang Airport Store Opening
High Sales Growth at Nha Trang and Hanoi Airport Stores
Among 14 Overseas Stores, 5 Located in Vietnam Including Hanoi City Store
Market Leadership and Visible Effects as Strengths
Young Market with Great Potential in Tourism Industry
"Will Surpass 60% Market Share in Vietnam Duty-Free Market Worth 500 Billion KRW"

Kim Ki-kyung, Head of Lotte Duty Free Vietnam Corporation.

[Da Nang=Asia Economy Reporter Yuri Kim] The place between countries is the airport duty-free shop. At Da Nang International Airport in Vietnam, the Lotte Duty Free store is continuously visible from the departure check-in queue right in front. The structure makes it inevitable to stop by once after check-in. Lotte Duty Free exclusively operates a total of 1,091㎡ (approximately 330 pyeong), consisting of a departure duty-free shop (974㎡) and an arrival duty-free shop (117㎡).

On the 2nd, at the Da Nang Airport departure area, Kim Ki-kyung, head of Lotte Duty Free Vietnam, said, "The duty-free business requires a lot of initial investment costs such as interior and product purchasing, making it difficult to turn a profit in the first year. However, the Da Nang Airport store, which opened in 2017, unusually recorded a profit from the first year of opening." He added, "Right after opening, annual sales reached 40 billion KRW, and before COVID-19, 53 billion KRW, greatly surpassing the Vietnam Airports Corporation's sales (about 10 billion KRW) before the new airport was built." This is why Vietnam is regarded as the 'best cash cow' among Lotte Duty Free's overseas business sites.

Since then, the Nha Trang Cam Ranh Airport store, which started exclusive operation of both arrival and departure areas in 2018, recorded significant sales growth mainly from Chinese tourists, and the Hanoi Noi Bai International Airport store, opened in 2019, also saw large sales increases centered on Korean, Chinese, and Southeast Asian business customers. With the opening of the Da Nang city store last month, Lotte Duty Free now operates four stores in Vietnam out of 13 stores in six overseas countries. When the Hanoi city store opens next year, five out of 14 overseas stores will be in Vietnam.

Kim joined the Vietnam corporation in 2018 and has been involved in the entire process from the initial operation of the Da Nang Airport store to the preparation for the Hanoi city store opening next year. He cited market preemption and the resulting visible effects as the primary reasons why Lotte Duty Free is focusing on the Vietnamese market. He said, "At first, it was difficult due to the nature of the business requiring a license, but starting with the Da Nang Airport store, we gradually became more comfortable by building achievements based on sourcing power, sales experience, and brand recognition." He added, "Although hubs like Singapore and Hong Kong could be considered, considering competition with existing global companies, Vietnam, where the duty-free business has been preempted and is successfully operated, offers the optimal conditions to be used as an integrated logistics supply chain in Asia and globally."

Having experienced both pre- and post-COVID-19 periods in Vietnam, Kim pointed out the increase in Korean tourists as the most noticeable change. He said, "Before COVID-19, the customer nationality and characteristics varied by city: Da Nang (Korean 40%, Chinese 40%, Southeast Asia and Europe 20%), Nha Trang (Chinese 80-85%, Russian 5%, Korean 5%), Hanoi (Korean 30%, Chinese 30%, Vietnam and others 40%). However, since COVID-19 until now, the proportion of Korean customers across Vietnam is about 80%," explaining, "This is why the Da Nang city store strengthened the local products section favored by Koreans."

He expects Vietnam's outbound travelers to recover 30% this year, 50% next year, and exceed 100% in 2024. With the full return of Chinese tourists, the market is expected to surpass pre-COVID-19 levels. The Vietnamese duty-free market size is also expected to grow from 300 billion KRW before COVID-19 to around 500 billion KRW. Lotte Duty Free aims to exceed a 60% market share in this expanded market.

Another noticeable change after COVID-19 is the increase in individual travelers compared to group travelers. This trend is expected to continue even after a full return to normal life. He said, "Before COVID-19, group travelers accounted for about 60%, but after COVID-19, individual travelers rose to 70%. As the proportion of low-cost group travelers who need to visit multiple shops decreased, duty-free shops have secured customers with higher purchasing power."

Vietnam's young market and its great potential in the tourism industry are also major strengths. According to the World Bank, the proportion of the middle class in Vietnam is expected to rise to 26% by 2026, about double compared to before COVID-19. The proportion of Vietnamese customer sales at the Hanoi Airport store has also recently risen to about 10%.

Lotte Duty Free plans to accelerate its preemption of the Southeast Asian duty-free market through focused investment in Vietnam. Kim said, "We are also considering expansion to Ho Chi Minh City and Phu Quoc within Vietnam," adding, "Our strategy is to absorb duty-free shopping demand for luxury fashion and beauty products not only from Korean and Chinese tourists visiting Vietnam but also from about 600 million Southeast Asian customers in neighboring countries such as Indonesia, Malaysia, and Thailand." He explained that they plan to expand the proportion of Vietnam stores to 35% among overseas stores, solidifying their position as a global duty-free operator.

This content was produced with the assistance of AI translation services.