South Korean duty free and travel retailer Hotel Shilla [a Samsung affiliate] is on track to break KRW4,000bn/$3.5bn in consolidated revenue this year according to estimates from financial analyst, Mirae Asset Daewoo Research.

If the forecast is correct, it will be a large increase of +23.5% on last year’s KRW3,252bn/$2.835bn. The DF&TR business – including downtown, Incheon airport and its Changi Airport beauty business – represents the vast bulk of this revenue with a share of 90% [based on Q2 16 preliminary data].

Driving much of this predicted sales surge will be Shilla’s new and fast-growing joint venture downtown duty free business: HDC Shilla [the joint venture partner being Hyundai]. It soft-opened its I’Park store in December 2015, with an official launch in mid-March, though some brands, including key luxury labels such as Louis Vuitton and Hermès were missing until later in the year.

BERNARD ARNAULT’S MAGIC TOUCH

TRBusiness understands that it wasn’t until LVMH Chairman and CEO, Bernard Arnault, visited the store and gave his personal nod that the LVMH portfolio was parachuted in. This was the green light for other luxury brands such as Gucci and Prada to follow [more on this in the August issue of TRBusiness magazine].

On a daily basis, sales at the new store are said to be significantly higher than originally expected. They are in the order of $1.5m and expected to generate full-year turnover of $500m to $600m.

Q2 LOOKS GOOD FOR DOWNTOWN, BAD FOR INCHEON

In terms of non-consolidated earnings in Q2, Shilla saw downtown sales surge by +29% to KRW538bn/$469m while Incheon airport sales fell by -19.2% to KRW198bn/$173m (see table below and click to enlarge).

However, in a note to investors issued on Monday, Mirae Asset Daewoo Research says: “In Q3, which is typically a peak season for both inbound and outbound tourism demand, we see strong growth potential in Hotel Shilla’s duty-free business.

“Top-line growth should also get a boost from an extremely low base of comparison arising from MERS last year.

“Following the commencement of the third round of Incheon’s duty free operations in Q3 2015, Hotel Shilla’s airport revenue declined for one year due to reduced floor space and business overhauls. But airport revenue is likely to turn around in Q3 2016, aided by the dissipation of high base effects.”

The analyst forecasts Q3 and Q4 airport growth at almost +23%  in both periods.

Further ahead, Shilla also has advanced plans for its joint venture downtown duty free offer with ANA Trading and Takashimaya in Japan. It will open in the Shinjuku area of Tokyo on the 11^th floor of the department store group’s 14-storey Takashimaya flagship and will follow Japan Duty Free’s Ginza opening in January. The Takashimaya launch is set for March 2017 with a first-year sales forecast of ¥15bn/$144m.