[Outlook for duty-free shops 2016 ➃] Existing companies also have difficulties…Can the new duty-free business operators handle the volumes that are concentrated at the same time?
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[Outlook for duty-free shops 2016 ➃] Existing companies also have difficulties…Can the new duty-free business operators handle the volumes that are concentrated at the same time?
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  • 승인 2016.01.15 15:11
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They need to be thoroughly prepared for incidents like the undelivered goods due to the sharp increase in volume last year and the recent baggage snafu at the Incheon International Airport.
The logistics management system of the new companies is not proven yet…Logistics disturbance is anticipated in periods during which volumes are concentrated.


It is not an exaggeration to say that due to the characteristics of duty-free shop operations, i.e. all inventories must be purchased before they can be sold, the increase or decrease of operating profits starts with inventory management. The warehouse space is limited, and the funds for purchasing new products must be raised. Items that are not sold at the right time will end up as the business operator’s inventory.

As a matter of fact, last year alone the logistics team of each duty-free shop faced several crises. In the first half, they had a hard time with increased volume, and in the second half they were plagued by the piling inventory due to the outbreak of MERS. As the volume increased more than expected, a large quantity of goods was undelivered due to errors last year.

A_2P9A0013 Photograph=The Incheon International Airport during the Labor Day period last May filled with outgoing passengers. At that time, the average number of items delivered per day sharply increased from 40,000 to 70,000~80,000.

Looking back on the year 2015, a duty-free shop insider said, “As the volume greatly increased or decreased depending on the market situation, it was difficult to make predictions, and inventory management was particularly difficult last year.” Individual duty-free shops have been using their own systems to improve efficiency, but it was clearly revealed that they were yet limited in flexibly responding to unexpected variables.

According to the number of incoming tourists predicted by the Ministry of Culture, Sports and Tourism, it will increase by about 24% YoY to 16.5 million. If the prediction holds true, the sales will increase proportionately, and the volume is highly likely to increase as well.  It is believed that the efficient logistics management systems, which the 5 new duty-free shops, scheduled to be opened in Seoul this year, plan to build, have also grown in importance.

Lotte Duty-Free Shop, ranked No. 1 in Korea, disposes of the inventory through discount sale if more than half of the initial shipment is sold. Its strategy is a low-price high-volume policy, i.e. increasing the total volume by introducing new products while increasing the turnover. Lotte, Shilla, Walkerhill and Shinsegae worked hard to develop their own logistics system for this reason.

写真=キム・ソンホ記者/ (9)郵袋包装及び搬出 Photograph=Lotte Duty-Free Shop Incheon Integrated Logistics Center. The warehouse is filled with the duty-free goods to be transported to the delivery area.

HDC Shilla Duty-Free Shop and Hanwha Galleria, which were recently opened, also built a logistics warehouse in the Incheon Free Trade Zone for the delivery of duty-free goods. HDC Shilla’s warehouse sits on a 500-pyeong lot in the designated storage area near the International Post Office, while Hanwha Galleria’s warehouse sits on a 500-pyeong lot in H Logistics in the Free Trade Zone. However, these warehouses are much smaller than those of existing companies, about 1/30 of the size of the Lotte logistics warehouse (over 29,000 pyeong). In particular, it is pointed out that the size of the warehouse for HDC Shilla, which will operate 8,300-pyeong stores, equivalent to the total area of the three Lotte downtown duty free shops, is too small for the size of its stores.

The two new duty-free shops, which are temporarily open now, say that there is no problem as of now. If the number of users sharply increases during the Chunjie (15 Days of Chinese New Year), the Labor Day and the summer vacation when Chinese tourists are concentrated, however, the volume will explode. So it recognizes the necessity of future expansion of its logistics warehouse.

A Hanwha Galleria insider said, “The actual area of the Incheon logistics warehouse is close to 1,000 pyeong, and the Gimpo and downtown stores have their own warehouses of an appropriate size. So there will not be any big problem for the time being.” HDC Shilla said, “There is no problem yet volume-wise as we have warehouses in the stores. We will increase the size of our warehouses when the time comes.”

As there is not enough physical space in the Incheon Free Trade Zone, however, it is doubtful whether these plans can be realized. To make matters worse, the duty-free goods delivery area in the Incheon International Airport is now under construction, normal operations will not be possible until after March. Even though the size of the delivery area will be increased by about 30%, confusion cannot but be avoided during the few months of temporary operations. As the construction period includes the Chunjie period, one of the biggest holidays in China, which comes in early February, the industry is as vigilant as ever. As local and foreign tourists overlap in this period, thorough preparations must be in order.

b_0501_004 Photograph=People forming a queue in the duty-free goods delivery area in the Incheon International Airport.

Meanwhile, some pointed out that the delivery area, which the Korea Duty Free Association is operating on consignment to help duty-free business operators actively manage their logistics and streamline their business, is creating inefficiency contrary to expectations. “The Korea Duty Free Association is operating the delivery area according to the regulations, but as the market is gradually shifting to a competitive system and institutional changes are being made, it will be difficult to accommodate all these changes,” said an industry insider. “It seems that the regulations and systems need to be changed in a way fit for the changes in the market.”


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