Cities the ticket for duty-free stores

Duty-free shops are traditionally found at airports, but downtown chains are now considered a prime option that can offer more enticing products

Last December, South Korean powerhouse Lotte Duty Free inked a deal with Vietnamese Imex Pan Pacific Group (IPPG) to run a downtown duty-free store in Hanoi. Covering an area of around 1,600 square metres, the new store is located on the sixth floor of the Trang Tien Plaza, which is slated to open at the end of the year.

Compared to airport duty-free shops, downtown stores boast lower rent-to-sales ratio, better product variety, and flexibility in product pricing and promotion. The development of duty-free outlets in downtown areas can attract customers of imported goods.

Johnathan Hanh Nguyen, chairman of IPPG said that with the tremendous potential of Vietnam’s tourism, IPPG and its partners have plans to open more downtown duty-free outlets in big cities. As high-end businesses are evolving, the group has developed new strategies for consumers. Meanwhile, Dior and Louis Vuitton are relocating their businesses from shopping malls to their own buildings, opening opportunities for the groups to cooperate with new global brands.

Lotte Duty Free made its debut in the Vietnamese duty-free market in 2017. The company already operates airport stores in the central cities of Danang and Cam Ranh, and Hanoi as well. Most recently, Lotte Duty Free declared Vietnam its primary target for foreign expansion.

The aim is to open downtown duty-free stores in Danang and Hanoi throughout this year.

Duty-free appeal

The Vietnamese duty-free market is mainly being exploited by local powerhouses. Southern Airports Services JSC dominates the segment at Tan Son Nhat International Airport while Noi Bai Airport Services JSC is running duty-free shops in Hanoi’s airport.

Robert Tran, CEO of the Robenny Corporation for the United States, Canada, and Asia-Pacific said that in the past, Vietnam’s tourism industry has failed to develop quality products, services, and workforce. Thus, downtown duty-free chains are considered new and enticing products for the local tourism industry, attracting luxury tourists in the country.

According to consultancy Savills, global luxury expansion experienced a regional rebalancing in 2020. Retailers are pivoting their focus towards Asia-Pacific markets, with the region accounting for a 38.9 per cent share of global luxury store openings from January to October 2020. This exceeded the region’s share of 31.8 per cent recorded in 2019, while overtaking Europe for the first time.

“The geographic shift in luxury openings is a trend that we have been tracking for the past three years, however it has been somewhat amplified in 2020 in line with the earlier reopening of retail markets across much of Asia-Pacific, coupled with a significant rebound in luxury post-lockdown,” noted Anthony Selwyn, head of Savills’ Prime Global Retail Team.

“For a number of years, Asia-Pacific has provided luxury brands with key locations for their global businesses. Now, the region is experiencing a positive recovery, stimulating further expansion and investment,” Selwyn added.

Undoubtedly, 2020 was a very difficult year for the retail sector. While sales in some parts of the world might be surging, others will contract significantly – similarly, strong counts of physical store openings in certain regions may be overlooking a potential rise in closures in less profitable locations.

Nonetheless, those retailers that are able to pivot their offerings, reach new audiences, and capitalise on the local demand will continue to reap the rewards in terms of growth.

Vietnam’s vast potential

On the other hand, experts believe that the increasing wealthy population in Vietnam, as well as the huge potential of the country’s tourism industry, has added more impetus for the luxury shopping and duty-free industry.

Lotte has been vying with its South Korean counterpart, Shilla, to expand its operations abroad in recent years, as the domestic market begins to saturate.

Lotte is currently the third-largest duty-free shop business in the world, after Dufry AG of Switzerland and DFS of the US. This is also the first time a South Korean enterprise has exploited Vietnam’s duty-free retail market.

The Vietnamese site of Lotte Online Duty Free is also preparing to use an e-wallet payment service in the first half of 2021, and plans to expand cooperation with local banks in Vietnam, cited newswire The Moodie Davitt Report.

Lee Jung-min, head of the online platform business division of Lotte Duty Free said, “We plan to pre-emptively introduce new payment services that can attract Southeast Asian customers such as in Vietnam, and provide various benefits.”

Last month, Lotte Duty Free launched the e-wallet payment services Sacombank Pay and Lien Viet 24h for the first time within South Korean duty-free systems.

In Vietnam, the rate of using electronic wallets is about 21 per cent – as common as credit card usage among younger people, Lotte Duty Free noted.

Although revenues have not been published yet, with four existing locations Lotte PK Duty Free is estimating that it will reach $100-200 million after a decade of operation. Lotte’s goal is to become the leading duty-free business in Vietnam.

Park Seok Won, CEO of Lotte PK Duty Free said, “2020 is a tough year for all of us. However, Lotte PK Duty Free will definitely not give up its business development potential in Vietnam”.

Meanwhile, as part of its global expansion plan moving forward, The Shilla Hotels & Resorts has expanded its first footprint in Vietnam with the debut of its maiden brand Shilla Monogram in the central coast region. Starting with Danang, The Shilla Hotels & Resorts is planning to enter about 10 foreign cities in the US, Indonesia, and Vietnam to become a global hotel chain.

Although Shilla has not signalled any signs for a potential duty-free business in this country, it is likely that the firm will take advantage of its nationwide branches to increase its luxury shopping services.

Currently, as per Vietnamese regulations, only international visitors can buy goods and enjoy the preferential tax policy at duty-free shops. To compensate for the shortage of international visitors, IPPG is proposing a policy to allow Vietnamese to shop at duty-free stores.

“I am proposing the allowance of tax payments to serve the needs of Vietnamese customers at duty-free shops, such as with imported goods. If approved, the state budget will also benefit from it,” said Nguyen of IPPG.

As per Research Dive statistics, the global duty-free retailing market is likely to reach up to $139 billion by the end of 2026. Geographically, Asia-Pacific’s duty-free retailing market is likely to dominate the industry owing to a rise in disposable income and an increasing middle class in the region.