[Exclusive] Silla Duty-Free with Wings at Airport... Changi Airport Store Contract Extended Until 2028

Operation without additional bidding until March 2028
Policy to maximize the effect of endemic domestic and international airport stores

Shilla Duty Free has secured a stable 'airport store effect' in the endemic (periodic infectious disease outbreak) era by extending its duty-free contract at Singapore Changi International Airport. Shilla Duty Free, which recorded a 'surprise operating profit' in the second quarter due to the strong performance of global airport duty-free stores including Changi Airport, plans to strengthen its airport store momentum in the second half by adding the effect of opening its Incheon International Airport store.

Shilla Duty Free Singapore Changi Airport Duplex Store
[Photo by Shilla Duty Free].

According to the distribution industry on the 1st, Shilla Duty Free recently extended its duty-free operation contract at Changi Airport, which expires in March next year, by four years. Having held the operating rights for 10 years since 2014, Shilla Duty Free can continue operations without additional bidding until March 2028 through this contract extension. Consideration was given to the fact that airport duty-free stores had not been properly operated for several years due to the closure of air routes caused by COVID-19. It is also analyzed that the trust relationship built between Changi Airport and Shilla Duty Free played a role in the contract extension being finalized.

For Shilla Duty Free, which aims to expand its influence at the 'three major Asian airports' including domestic airports, Singapore, and Hong Kong, this contract extension is a positive development as it allows mid- to long-term operation at the key base of Changi Airport without variables. Shilla Duty Free plans to accelerate the expansion of global airport sales by leveraging the structural strengths of the duplex store at Changi Airport and its position as the world's largest operator in the cosmetics and perfume sectors.

Hotel Shilla's consolidated operating profit for the second quarter was 67.2 billion KRW, an increase of 55.6% compared to the same period last year. This is a surprise performance that exceeded market consensus (forecast). The duty-free store operating profit led the strong results with 43.2 billion KRW, a 192% increase. Although downtown store sales decreased by 63% year-on-year due to reduced demand from Chinese daigou (personal shoppers) following commission fee cuts, the airport store sales, which have strong real demand in the endemic period, surged by 204%. The proportion of domestic airport retail customers in the second quarter increased to 40%. Overseas duty-free stores in not only Singapore but also Hong Kong and Macau saw operating profits increase by about 15 billion KRW compared to the previous quarter due to the recovery in travel demand. The contribution ratio of operating profits between domestic and overseas in the second quarter was estimated to be about 5 to 5.

Consolidated sales decreased by 25.6% to 866.9 billion KRW. This was influenced by a 29.9% drop in duty-free sales to 708.1 billion KRW. The reduction in commission fees aimed at lowering dependence on daigou had an impact.

From the second half of the year, additional performance improvements from Incheon International Airport are also expected. Shilla Duty Free began operations last month at Terminals 1 and 2 (T1, T2) of Incheon International Airport. The store, covering 8,907㎡ (approximately 2,700 pyeong), showcases about 400 brands. Shilla Duty Free sells perfume and cosmetics brands such as Chanel, Dior, Est?e Lauder, Sulwhasoo, and Whoo; luxury fashion brands including Herm?s, Chanel, Gucci, and Saint Laurent; and liquor, tobacco, and food brands such as Ballantine’s, Johnnie Walker, KT&G, and Jeonggwanjang. Shilla Duty Free plans to hold a grand opening next year through additional store renovations including the duplex store.

The industry said that the acceleration of the endemic will continue to increase demand from domestic and international airport duty-free retail customers, raising expectations for Shilla Duty Free’s performance improvement. Heo Jena, a researcher at DB Financial Investment, said, "The recovery speed of Hong Kong and Macau airports is also exceeding expectations," adding, "The third quarter is the summer peak season, and both domestic outbound travel demand and foreign inbound visit demand are expected to increase simultaneously in Korea."

On the 28th, marking the official start of the summer vacation season, Incheon International Airport Terminal 1 duty-free area was bustling with travelers. Photo by Jinhyung Kang aymsdream@