BW Confidential - Issue #2 - May/June 2010 - (Page 56)

Travel retail Interview: The Shilla Sitting pretty In a Korean market set for big changes, dutyfree operator The Shilla Hotel Duty Free looks well-positioned for more share gains by Kevin Rozario T he Shilla Hotel Duty Free has more than doubled its share of South Korea’s travel-retail business from 12.2% in 2005 to 27.8% in 2009. Beauty accounts for almost 40% of the company’s sales making it crucial to future development. This year, that development is likely to involve the takeover of competitor Paradise Duty Free, which has a 3 to 4% share of Korea’s dutyfree market. In an exclusive interview with BW Confidential, Shilla perfume and cosmetics merchandising team director Seok-Ho Hon speaks about its beauty offer and where the market is heading in 2010. nese, with products such as Blemish Balm creams and mask packs. For example, in Seoul downtown, average sales of Korean local brands now stands at $1.5m per month. Meanwhile, Chinese traveler numbers are expected to grow in 2010, especially at our Jeju and Incheon shops, where their influence has already risen and is expected to increase for more years to come. Given these changes, did you alter your beauty offer to attract more or different types of customers? During the period when the Korean won was very weak, we offered Korean customers extra discounts in order to compete What effect did the weakness of the won have on with local market prices. We had little choice since Korean duspending by outbound Koreans? ty-free shop pricing is in US dollars and there The weak won directly resulted in a drop off were some periods when duty-free prices were in the number of outbound Korean travelers. more expensive or equal to local prices when For us this meant that in our Seoul downtown Korean won. To to, and During the period when the converting toJapanese customers, caterhave also shop, the share of Koreans in the customer attract more we Korean won was very weak, created a local Korean cosmetics zone in Seoul mix in the beauty category slipped to 46% whereas it used to be more than 70%. Howwe offered Korean customers downtown and we promote the brands in this ever, on the positive side, the strong yen area to the Japanese. In addition, we have expanextra discounts in order brought us extra Japanese customers and ded our cosmetic zone to add brands like Kiehl’s, to compete with local their share rose to 42%, whereas they used Aveda and The Body Shop as well as enlarging to be under 20% of the mix in past years. the areas for Korean brands like Sulwhasoo and market prices The Chinese have also started to make their Hera which is popular among the Chinese and presence felt having gained a 4% share in southeast Asians. Seoul downtown from almost zero in past years. It is true that Korean duty-free beauty How will you increase beauty sales sales too [picked up from April 2009]. We in 2010? experienced a rebound from the second half We are studying our customers’ needs, staffing of 2009 and that has continued up to now. and space planning within our cosmetics areas through surveys and consultations in order to maximize the efficiency of our limited Does this mean that outbound Koreans are losing their space and to deliver the right products to the right customers at influence in beauty and that there is a new order emerthe right time. This is possible through target marketing based on ging with respect to the Japanese and Chinese? our extensive customer database analysis and upgrading our inBeauty has traditionally been heavily dependent on Korean custoventory control system. Once our study is done, we might expand mers. But although last year’s combination of a weak Korean won, the beauty zone and also re-locate some brands depending on strong Japanese yen, and increasing numbers of Chinese travelers the results. made big changes to the shares of these nationalities, Koreans are still our major customers and are showing a strong rebound from What do you see as the main opportunities and threats in the end of last year as the won has stabilized. the local and duty-free South Korean market? However, we have seen some important developments, such as Opportunities and threats are very dependent on exchange rate local Korean cosmetic brands becoming a big hit with the Japafluctuations. If the Korean won is stable at under 1,100 and the “ ” 56 May-June 2010 - N°2 - BW Confidential

Table of Contents for the Digital Edition of BW Confidential - Issue #2 - May/June 2010

- Brand and retail news recap
Take note
- Market facts, figures and trends
The latest fragrance, skincare and make-up launches
Best of BW
- Market highlights
- Clarins Fragrance Group president Joël Palix
Insight : skincare
- Category overview
- Industry viewpoint
- Trends
- Training in spas
- Spa case studies
Market watch : Asia
- Regional analysis
- Japan
- China
- South Korea
Focus : Fragrance creation
- Fragrance regulations
- Perfumer roundtable
- Six up-and-coming beauty brands
Travel retail
- Asia regional roundup
- Interview with Korea duty-free
Last word
- Morning Star equity analyst Erin Swanson on beauty’s threats and opportunities

BW Confidential - Issue #2 - May/June 2010