the korean miracle duty free & travel retail insights korean miracle duty free & travel...
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© Martin Roll Company 2009 – All rights reserved - www.martinroll.com
The Korean Miracle Duty free & Travel Retail Insights
TFWA 2009Cannes, 21 October 2009
Martin Roll
© Martin Roll Company 2009 – All rights reserved - www.martinroll.com
Top 12 duty free and travel retail markets (2008)
777
851
851
999
1.073
1.110
1.184
1.258
1.442
2.738
3.108
3.182
0 500 1000 1500 2000 2500 3000 3500
Japan
China
Spain
US Virgin Islands
Singapore
Hong Kong
Germany
France
UAE
US
Korea
UK 7.2%
14.0%
17.0%
22.2%
10.1%
10.4%
24.1%
17.2%
7.8%
11.2%
27.5%
9.7%
8.6%
8.4%
7.4%
3.9%
3.4%
3.2%
3.0%
2.9%
2.7%
2.3%
2.3%
2.1%
CAGR03-08
M/S
Source: The Shilla, www.generation.se
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If a global luxury brand can achieve success in Korea, it can flourish
anywhere....
© Martin Roll Company 2009 – All rights reserved - www.martinroll.com
South KoreaGeography
• Population: 49,540,367
– 43% of the total population belongs to Seoul & Gyeonggi Province
• Annual Growth Rate: 0.55%
• Total Area: 99,678 sq km (in 2007)
• Ethnic Groups: Korean
• Official Language: Korean
• Literacy: 98%
0-19 years
20-39 years
40-59 years
60-79 years
24.1%
31.7%
29.9%
14.4%
Source: TNS, Korean Statistical Information System (2008), The Statistics Year Book of Construction & Traffic in 2007
Seoul(10.2 million)
Inchon(2.7 million)
Busan(3.6 million)
Ulsan(1.1 million)
Daegu(2.5 million)
Daejeon(1.5 million)
Gwangju(1.4 million)
Cheju(0.6 million)
Gyeonggi(11.3 million)
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Korean duty free market 1
• Korean duty free market started around 20 years ago
• 3.1 billion USD market (2008)
• Korean passengers duty free allowance:– Outbound: 3.000 USD– In-bound: 400 USD
• Korean Airlines largest in-flight shop in the world
• Incheon Airport no. 2 airport player worldwide
• 7 main operators in Korea
• Challenging market structure (oligopolistic nature) –strictly controlled (no more licences for operators)
• Lotte and The Shilla are the leading players
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Korean duty free market 2
• Very aware, informed and demanding consumers
• Mature and very competitive market offering vast choices to consumers
• Quality and services dimensions more important success criteria than anywhere else
• Brands in high demand
• Attractive exchange rates has fuelled growth with Japanese customers (prices up to 40% lower than downtown prices in Japan)
• Huge market potential
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Korean Duty-free operators
8%5%
5%
4%
3%
48%
27%AKKTODongwhaParadiseWalkerhillLotteThe Shilla
• 7 major players
• The Shilla and Lotte have significant grip on the market (75%)
Source: The Shilla, industry sources
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Incheon Airport (IIAC)
Concourse(GATES 101-132)
Passenger Terminal(GATES 1- 50)
The Shilla stores
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Incheon Airport (IIAC)
• World’s Best Airport 2009 (Skytrax Magazine)
• 12.4% decrease (1.9 mio pax) for 2009 due to economic downturn, swine flu and weak Korean won
• Decrease mostly from Korean family travellers – business pax less affected
• Main terminal (34 shops): Korean Air and Asiana
• New concourse departure area (June 2008) – 35% of pax
• Concourse area (30 shops): Foreign airlines
• Total duty-free space: 15.000sqm – 66 outlets
• Major overhaul of duty-free shops in 2008
• 4 operators hold 6 concessions: The Shilla, Lotte, AK Duty Free and KTO
• Awarede operators 8% rebate on airport concession fees for March – December 2009
Source: Courtesy of “The Travel Retail Business Magazine”Industry sources
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Incheon Airport (IIAC)
-26%50%68%Korean nationals
+67%15%9%Japanese nationals
6%
13.5 mio
27-28 mio
500
1.000 mio
2009
5%
15.4 mio
29 mio
417 mio
767 mio
2008
+30%Duty free sales (full year)
+20%Duty free sales (1H)
-4-7%Outbound pax (full year)
-12.3%Outbound pax (1H)
+20%Chinese nationals
ChangeBrand
Source: Courtesy of “The Travel Retail Business Magazine”
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Incheon Airport (IIAC)Category mix
38%
18%10%
9%
7%
4%
4%
4%
3%3%
Perfume/cosmetics
Leather
Tobacco
Liquor
Watches
Fashion accessories
Korean foodstuff
Sunglasses
Electrical goods
Fashion apparel
Source: Courtesy of “The Travel Retail Business Magazine”
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© Martin Roll Company 2009 – All rights reserved - www.martinroll.com
Lotte
• Operates 7 Lotte Duty Free locations• 12 shops in Incheon Airport• Lotte Group opens 123-storey shopping, entertaiment, office
and hotel comple in Kangnam area (2014) – re-locating excisting downtown duty-free store to new 8.000sqm two-level store (expected to be largest duty free store in the world)
• Challenge to attract Japanese to Lotte World – they prefer downtown main store at Myeonddong
• Last 2-3 years, outbound Koreans account for 80% of duty-free spending in Lotte World
• Increase in luxury brand purchases: Chanel (Jan-Aug 2009: +37%), Hermes (Jan-Aug 2009: +27%) etc. at the main store
• Exclusive rights to sell duty free liquor and tobacco at IncheonAirport
Source: Courtesy of “The Travel Retail Business Magazine”
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Lotte
-15%136 mio160 mioSeoul Lotte World (full year)
490 mio
358 mio
820 mio
1.250 mio
2009
452 mio
370 mio
882mio
1.300 mio
2008
-4%Duty free sales (full year)
-7%Duty free sales (Jan-Aug)
-3.5%Incheon Airport (full year)
+10%Seoul main store (full year)
ChangeUSD
Note: Jan-Aug 2009 revenues up 24% in Korean Won, but calculated in USD it becomes less (-7%). New concession in Incheon Airport started in March 2008
Source: Courtesy of “The Travel Retail Business Magazine”
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The Shilla
• Represents over 300 brands
• 27 duty free shops in Incheon Airport
• Holds retail concessions for perfumes, cosmetics, fashion and general merchandise in Incheon Airport
• Customer mix: Koreans (60%), Japanese (26%), Chinese (5%), US (2%) and others (6%)
• 25% of total cosmetics sales from 5 Korean cosmetics brands
• Operates boutiques for 21 brands at Incheon Airport –Prada shop is latest addition
• Gucci is largest selling boutique, followed by Chanel
Source: Courtesy of “The Travel Retail Business Magazine”
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The Shilla
+40%320 mio230 mioSeoul main store (full year)
65 mio
340 mio
725 mio
2009
41 mio
262 mio
528 mio
2008
+38%Duty free sales (full year)
+30%Incheon Airport (full year)
+60%Jeju (full year)
ChangeUSD
Note: Jan-Aug 2009 revenues up 24% in Korean Won, but calculated in USD it becomes less (-7%). New concession in Incheon Airport started in March 2008 and did not trade for the full year
Source: Courtesy of “The Travel Retail Business Magazine”
© Martin Roll Company 2009 – All rights reserved - www.martinroll.com
© Martin Roll Company 2009 – All rights reserved - www.martinroll.com
Korean Airlines
• 20% pax decline
• Approximately 300 items including 40 exclusive products
• Productmix: Cosmetics (40%), liquor (25%), fragrances (5%)
• Most duty-free sales in-bound to Korea
• Pre-order is 20% of total sales
• Most sales recorded on North American routes, followed by European, China and Japan routes
• Tobacco products delisted since February 2008
• Trained more than 4.000 cabin crew in in-flight sales
Source: Courtesy of “The Travel Retail Business Magazine”
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Korean Airlines
+11%40%36%Cosmetics (1H)
-17%25%30%Liquor (1H)
5%
N/A
N/A
2009
4%
12.6 mio
185 mio
2008
Duty free sales (full year)
Pax (full year)
+20%Fragrances (1H)
ChangeBrand
Source: Courtesy of “The Travel Retail Business Magazine”www.koreanair.com
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학연 - HAK YEON
지연 - JI YEON
인연 - IN YEON
Source: Insights from Pierre Lequeux, GLI Consulting, industry sources
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The Korean distribution modelBrand > Agent > Operator
Brand responsibilitiesBusiness strategyBrand strategyBrand communicationsGuidelines, Training and workshops
The brandThe brand The Korean agentThe Korean agent The operatorThe operator
Agents
Total of 108 agents20 major players
Cultural aspectsKnowledge aspectsEconomic aspects
Agent & operator responsibilitiesMarket managementDistribution managementOperational marketingSalesCompetitor surveillanceMarket feedback & evaluation
Source: Insights from Pierre Lequeux, GLI Consulting, industry sources
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Consumer behaviour
Self-Actualisation
Prestige
Belonging
Safety
Physiological
Affiliation
Safety
Physiological
PERSONAL
SOCIAL
PHYSICAL
SOCIAL
WEST ASIA
Status
Admiration
Source: Professor Hellmut Schütte, INSEAD
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Symbolic struggle of a recognised social being
• Sensitivity to being seen as prestigious causes a high preference for premium or luxury brands
• Korean consumers’ preference for premium and luxurious brands is very high compared to the rest of Asia
• Discerning about true and fake luxury• A premium and luxury brand is translated as “명품 (名品,
myeong-pum)”, which is widely used to indicate quality commodities (both goods and services), gorgeous body shapes, etc.
• Example: Showing-off through cars is the one most important code in car purchase and driving (most cars are silver-grey or black)
Source: Insights from Synovate Korea, industry sources
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Concept of self: In-group/out-group affiliations
Self
FriendSibling
Co-worker
Father
Self
FriendCo-worker
FriendFather
The independant self
The interdependant self
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Group behaviour dominates
• When drinking on-premise:– You order large bottles – not single serve– You order the same beer for everyone– Your pour for someone else – never for yourself– For special events, you share the glass
Source: Insights from Synovate Korea, industry sources
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A new agenda for brands in Asia
• Connected countries• Separate countries
• Modern urban Asia• Exotic Asia
• Mosaic of cultures• Homogeneous region
• Prominence of Asian images and music
• Invaded by Western images
ToFrom
Transforming the way we view Asian culture
• Being different but in the same way• Conformist cultures
• Different types of in-group and out-group affiliations
• Collectivist cultures
ToFrom
Transforming the way we view Asian psychology
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© Martin Roll Company 2009 – All rights reserved - www.martinroll.com
Being different but in the same way...
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The rise and fall of a trend occurs quickly
• Korean consumers are curious and enthusiastic to try new products
• The speed and the scale of trend changes are fast and large
• It is unusual to see women wearing styles that were trendy a couple of years ago
• The fastest changing product cycle (1.5 years for mobile phones) and enthusiastic consumption make Korea a test market for high-technology products, fashion and luxury products
Source: Insights from Synovate Korea, industry sources
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Korea: The future of the Internet
• 95% is the diffusion rate of broadband at home. The highest rate in the world – Singapore is second at 88%
• 1.5 million number of IPTV’s in use (end of 2008)• There are more than 57.000 blogs in Korean language
in 2008 – 85% of them operated by young people from 12-30 years old
• Online purchase is widespread:– Usage past year: 68%– Monthly frequency: 1.4 purchases
• Estimated 30-40% of branded products sold online and not in official stores (naver.com, feelway.com etc)
• Internet sales of luxury fashion brands hit a record high of 15.7 billion USD in 2008 – up 18% from 2007
Source: Insights from Synovate Korea, industry sources, TIME Magazine, South Korea National Statistics Office
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Social media: Growing importance
69729Amorepacific
3911.240Louis Vuitton
1971.349Bulgari
213596Cartier
5729.054Gucci
79311.511Chanel
3631.406Rolex
5942.755Prada
4522.032Giorgio Armani
3661.823Hermes
2976191Lotte
2283.090Shinsegae
1996.969Laneige
Buzz ChannelsBrandSource:
Courtesy of Brandtology exclusively for TFWAwww.brandtology.com
Sample from 8 August – 8 October 2009 from selected channels across Asia Pacific
Languages: English, Chinese (simplified and traditional), Korean, Japanese, Bahasa (ID and MY)
© Martin Roll Company 2009 – All rights reserved - www.martinroll.com
Social media: Growing importance
2.17955.255Samsung
1.32126.420Nokia
2980100.902Google
106019.044BMW
6033.919Citi
2.46757.730Apple
1.06515.782IBM
83017.304IKEA
2.27840.925SONY
Buzz ChannelsBrandSource:
Courtesy of Brandtology exclusively for TFWAwww.brandtology.com
Sample from 8 August – 8 October 2009 from selected channels across Asia Pacific
Languages: English, Chinese (simplified and traditional), Korean, Japanese, Bahasa (ID and MY)
© Martin Roll Company 2009 – All rights reserved - www.martinroll.com
Personal appearence
• Koreans are highly conscious about beauty, perfection and glamour
• Very important to feel healthy and look pretty
• 50% of Korean women in ther 20’ties have undergone plastic surgery
• Typical Korean women use around 5 cosmetics products for their basic make-up, which is 2-3 time more than consumers overseas
• The demand for a slim body shape has created a steep rise in fitness centers since 2000 – stimulated by celebrities whom are typical role models
Source: Insights from Synovate Korea, industry sources
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© Martin Roll Company 2009 – All rights reserved - www.martinroll.com
“The purpose of price is not to recover costs, but to capture the value of the brand in the minds of
the consumers”
Akio Morita, Founder of SONY
© Martin Roll Company 2009 – All rights reserved - www.martinroll.comSource: Louis Vuitton
© Martin Roll Company 2009 – All rights reserved - www.martinroll.com
McKinsey & Company 1
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rinted
|
Foreign luxury market in Korea has grown significantly and is a keymarket in global arena
1 According to ‘Luxury brand marketing’ by Yonsei Fashion Center and Samsung Design Net2 Estimated with 2007 figure with average sales growth rate of luxury goods at department store in FY 2008 = 28.5%
SOURCE: MPI Consulting report ‘Luxury Market in Korea’, 2005; Luxury Brand Marketing, 2009; Ministry of Economy, MckInsey analysis
1.00.4
1997 2008e
+120% p.a.
2003
3.0
2007
3.9
Luxury market in KoreaTrillion KRW
Financials of major luxury brands in KoreaRevenue and operating income ratio, Billion KRW
281169
+48% p.a.
1218959
Luxury market in Korea, taking ~15% of total fashion industry in the country, accounts for 4% of global luxury market and is counted as key test-market for luxury players1
146140122112
+26% p.a.
58
6755484341
+13% p.a.
3% 7% 9% 14% 11%
16% 21% 22% 22% 18%
6% 2% 4% 5% 7%
2004 2005 2006 2007 2008
Source: Courtesy of McKinsey & Company”Korean consumer behaviour in luxury retailing”
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McKinsey & Company 2
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rinted
|Source: Ministry of Economy, Fashion Channel magazine, Korea Economic Daily
1 52.8% of sales at department store is apparel (female formal suits, female casual wears, male wear)
Luxury market in Korea has grown even in time of recession
Monthly growth rate of luxury goods vs apparel sales Percent
20092007 2008-20
-10
0
10
20
30
40
50
Apparel1
LuxuryGoods
▪ Luxury brand sales has been showing much higher growth rate than overall apparel sales in the past years
▪ Even in recession, luxury goods sales showed annual average of 29% in 2008 and reached the peak of 48% in Feb 2009, compared to 1.4% in 2008 and -5.9% in Feb 2009 of overall apparel sales
Foreign luxury brands offeredShinsegae Main branch
250-300
2009
~20
Early 2000s▪ Branches solely for luxury brands have been either newly
opened or renewed and are all performing much better than expected– Galleria East reopened in 2004– Lotte opened Avenuel in 2005– Shinsegae luxury main branch reopened in 2006
Department stores in Korea
Number of luxury brandsTop selling brands 1H 2009
1
2
3
4
5
Source: Courtesy of McKinsey & Company”Korean consumer behaviour in luxury retailing”
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McKinsey & Company 3
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rinted
| 3Source: 2009 Korea Retail Yearbook, Literature search
Luxury consumption has moved to ‘hard luxury’ from ‘soft luxury’
Luxury consumption before were in ‘soft luxury’
…but increasingly consumers are purchasing ‘hard luxury’
Luxury watch market in Korea is growing at 30-40% per year and department stores are building ‘luxury watch specialized corner’1
1 ‘Big Ben’ in Galleria, ‘Chronodigm’ in Lotte, ‘The house of fine watch’ in Hyundai
Until 2009, most of the luxury items purchased in Korea were cosmetics, accessories and perfume etc.
Source: Courtesy of McKinsey & Company”Korean consumer behaviour in luxury retailing”
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McKinsey & Company 6
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MP
rinted
|
Department store still accounts large for luxury retailing in Korea but other non-traditional channels are emerging
Source : Luxury Brand Marketing, 2009, Literature search
1 Survey done towards 1,208 Korean female customers in 20-30s2 Non store include online shopping and TV home shopping3 Yeoju Outlet opened in 2007 by Shinsegae and Chelsey, Kimhae Outlet in Dec 2008 by Lotte
43
21
13
18
Department store
100%Others
Outlets
Brand stores
5
2008
Non-store1
1,209 persons
Shopping channels of luxury items1
2008
Non-store▪ TV Home shopping firms
expand direct merchandising of foreign luxury goods as the performance is significant –140% sales increase by Hyundai Home shopping in 1H2008
Premium outlets▪ Yeoju Outlet (Shinsegae)
and Kimhae Outlet (Lotte)3
showing 50%, 155% sales increase respectively while luxury sales increase at department stores was 22%
Non-traditional but growing luxury retailing channel
Source: Courtesy of McKinsey & Company”Korean consumer behaviour in luxury retailing”
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25
30
35
40
45
50
55
60
-6
-4
-2
0
2
4
6
8
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
Consumer Sentiment Index CSI (left axis)
GDP Growth (right axis)
Korean consumer sentiment is rising
Source: Samsung Economic Research Institute: Consumer Sentiment Index, 3Q 2009
2006 2007 2008 2009
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Travel forecasts 2009-2011International travels - Korea
16.455.870
7.795.7477.420.0697.093.883
17.356.221
15.675.214
0
2.000.000
4.000.000
6.000.000
8.000.000
10.000.000
12.000.000
14.000.000
16.000.000
18.000.000
20.000.000
2009 2010 2011
ArrivalsDepartures
Source: Pacific Asia Tourism Association (PATA)Asia Pacific Tourism Forecasts 2009-2011
+4.6%
+5.0%+5.5%
+5.1%
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Arrogance and complacency are the most lethal enemies of global
brands in Korea....
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Success criteria for duty free in Korea
• Collaboration with Korean partners essential• Be sensitive to channel management• Very high expections of service (patience, information
seeking, test etc)• Good price/value essential• Build and maintain premium brand visibility • Merchandising and point-of-sales promotions are crucial
(general high need for status indicators and external admiration)
• All procedures in Korea takes time, patience and money• Be sensitive to local culture: Don’t try to change the
rules – you can’t!...• Be passionate – you are in that business!
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”We are not in the business of selling handbags. We are in the business of selling dreams...”.
Robert Polet
CEO, Gucci Group
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www.asianbrandstrategy.com
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Martin Roll
• LinkedIn: www.linkedin.com/martinroll
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Martin Roll
• Business & Brand Strategist Martin Roll delivers the combined value of an experienced international strategist and a senior advisor to corporate boards and top-management teams of Fortune 500 companies
• Martin Roll facilitates business leaders and organizations to think bold for future strategies. By focusing on building iconic businesses and brands, Martin Roll advises boardrooms on how to create sustainable competitive advantage and enhance shareholder value
• Martin Roll brings more than 20 years of management experience from the international advertising and branding industry
© Martin Roll Company 2009 – All rights reserved - www.martinroll.com
Martin Roll
• Martin Roll is a frequent guest lecturer at INSEAD and CEIBS, and guest lectures at Harvard, Wharton, London Business School, UCLA, Yonsei, Boston University and many others
• Martin Roll is the author of the international bestseller Asian Brand Strategy, a compelling book of frameworks for Asian branding and the winning formula for any global boardroom (“Best Global Business Books” by Strategy+Business magazine)
• His next book (2010) looks at value creation through branding and how this guides leadership and performance at CEO and boardroom level
• MBA from INSEAD
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