Retail News CRM

Tag: Korea

  • GS Retail replaces vice chairman

    GS Retail replaces vice chairman

    GS Retail vice chairman Huh Seung-jo stepped down from his post in the latest executive reshuffle announced by GS Group on Tuesday.

    He has been replaced by his nephew and GS Retail president Huh Yeon-soo, the son of Huh Shin-goo — the fourth son of the GS Group founder.

    The new appointment reflects the firm’s efforts to reinvigorate its operations.

    The resignation of Seung-jo, the youngest son of GS Group founder Huh Man-jung, signals the end of the leadership of the second-generation members of the controlling family.

    Meanwhile, the incoming vice chairman is credited with having made significant contributions to the growth of GS Retail’s convenience store business in Korea.

     

  • Samsung’s Galaxy phone most valuable brand in South Korea

    Samsung’s Galaxy phone most valuable brand in South Korea

    South Korean tech giant Samsung Electronics’ Galaxy smartphone was selected as the most valuable brand in South Korea for the fifth consecutive year, a survey showed Sunday.

    The Samsung Galaxy phone ranked first in the brand survey by Seoul-based market researcher Brandstock, followed by E-Mart, a discount store chain by retail giant Shinsegae Co.

    Incheon International Airport, South Korea’s gateway airport, climbed up one notch to take third place.

    Kakao Talk, South Korea’s biggest mobile messenger with 47 million users, and Naver, the nation’s No. 1 Internet portal, came next, the researcher said.

    The brand value of German automakers suffered after Volkswagen admitted that millions of its diesel cars worldwide were equipped with software that was used to cheat on emissions tests.

    BMW’s rank tumbled from 12th to 31st, and Volkswagen, which ranked 71st last year, dropped out of the top 100, following the emissions cheating scandal, it said.

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  • Massive Innisfree China store planned

    Massive Innisfree China store planned

    Innisfree, the Korean natural cosmetics brand owned by Amore Pacific, is to open its largest store yet, in China.

    Amore Pacific announced Innisfree China will open an 827 sqm flagship store in Shanghai.

    This is the largest store among all of Innisfree’s retail locations, and reportedly the largest cosmetics store in China.

    Since Amore Pacific launched an online store in April 2012, it has been operating 200 offline stores all over China, including in Shanghai, Beijing and Shenyang. Innisfree’s ‘Green Tea Seed Serum’ and ‘Volcanic Ash Pore Mask’ are its highest-selling products.

    Management of Amore Pacific said Innisfree is popular among picky Chinese consumers in their 20s and 30s.

    “We think that the concept of our products made from natural ingredients found on Jeju Island, and the trust in Amore Pacific is an attraction to Chinese consumers.”

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  • South Korean retailers binge on discounting

    South Korean retailers binge on discounting

    On top of seasonal sales and occasional promotions, major South Korean retailers have been holding a series of big discount events since summer to create an intense, promotion-heavy atmosphere through the Christmas season and beyond.

    The discount binge has indeed given a fillip to consumer spending here, but market watchers question its long-term effect as a slowdown in Asia’s fourth-largest economy has led to lower incomes for many people, prompting them to tighten their purse strings.

    Most recently, “K-Sale Day” kicked off last week to run for 26 days nationwide, led by major department stores and outlets that hope to grab shoppers’ attention ahead of the original Black Friday.’

    It came just a month after “Korea’s Black Friday”, a nationwide shopping campaign initiated by the government during the first two weeks of October to jack up the stagnant domestic consumption.

    The government-led event even overlapped with “Korea Grand Sale”, during which retailers knocked down prices from early September to mid-October to woo back both domestic consumers and Chinese travelers during the long-haul national holiday.

    One of the main reasons for the deluge of sales is the summer slump following the outbreak of Middle East Respiratory Syndrome (Mers) in late May, which poured cold water on domestic spending and dented tourist numbers.

    More fundamentally, however, the seemingly never-ending sale is seen as an early sign that South Korea is heading into a recession.

    “Although the domestic economy has long grappled with sluggish consumption, the government is ever more concerned about weak spending after exports showed signs of slowing,” says Ko Ga-young, a researcher at LG Economic Research Institute.

    “Exporters in the manufacturing sector had propelled the growth until the 2008 global financial crisis, but their prospects remain bleak due to slowdown in the Chinese economy and tougher global competition in the low-end manufacturing sector.”

    Although policy makers had expected that low oil prices and record-low interest rates would boost the economy this year, the fallout from the Mers outbreak prompted the government to lower its 2015 growth forecast from 3.8 per cent to 3.1 per cent in June.

    The retail discount events, held both online and offline, did not create much buzz like Chinese e-commerce giant Alibaba’s “Singles Day”, which recorded a blockbuster US$14.3 billion in sales on November 11, but the steep discounts did serve as the spending trigger for pent-up demand in a short period of time.

    According to the data compiled by the industry ministry, the 22 retailers that joined the Black Friday Korea campaign saw their sales rise 20.7 per cent on-year to 719.4 billion won (US$634.9 million) during the two-week period.

    While the government touted its “successful effort” in reviving the consumer sentiment, the market remained skeptical over the growth from last year’s low base during the extended holiday season.

    “Large department stores and discount chains face an unfavorable business environment because massive sales events and permanent discount policy produced a limited effect despite last year’s low base,” said Nam Sung-hyun, a researcher at Kiwoom Securities.

    Unlike a one-off factor like the viral disease, market watchers worry that the tight labor market and rising household debt could continue to discourage people from spending on concerns over their unstable future.

    The youth jobless rate reached the highest level in 15 years at 10.1 per cent in June with more college graduates landing at temporary positions, while the average consumption propensity dipped to a record low 71.5 per cent in the third quarter, according to Statistics Korea.

    “The consumption propensity is expected to further decline because households are managing their spending schedule in line with the bleak long-term growth prospect and extended life span,” Ko said.

    Bricks-and-mortar shops face an even dimmer outlook as more consumers are hunting for bargains from online marketplaces abroad.

    Traditional retailers not only have to compete with each other but also counter challenges from international online marketplaces stealing their customers with easier delivery and transaction procedures.

    “As more consumers learn they can easily buy products at a much cheaper price via online vendors, offline shops are more frequently conducting discount events to retain their customers,” said Jun Mi-young, a professor at Seoul National University and co-author of Trend Korea 2016.

    “The experience of buying foreign brands at discounted prices has created a healthy dose of cynicism about department stores’ pricing policy.”

    According to US No 1 retailer Walmart’s Black Friday advertisement, South Korean tech giant Samsung Electronics’ 55-inch HDTV was discounted to $498, less than half prices for similar models sold at Korean department stores.

    Some deals even raise questions over whether retailers set a higher price from the beginning to look like they are giving discounts.

    Lotte Department Store’s K-Sale Day promotional leaflet shows that the price of German kitchenware maker Henkel’s five-star knife block set was reduced from 550,000 won to 229,000 won.

    Sounds like a good deal. But you can buy the same product below 200,000 won at several online shopping malls on any given day.

    The desperate efforts to grab customers with lower prices, however, come at a price.

    As sales start earlier and last longer, they become less important and easier for consumers to ignore. When every day is special, none is.

    “I used to wait for the discount season to buy off-season clothes or other things at cheaper prices,” Lee Su-jin, a 35-year-old office worker in Seoul, said. “These days, I use mobile applications to buy refurbished products or find good deals at overseas websites.”

    While the discount pricing strategy is useful in driving traffic and sales for a short term, marketing professionals worry repeated sales could negatively affect the retail industry in the long run.

    To survive in the borderless digital commerce world, they advise bricks-and-mortar shops to come up with differentiated services to increase customer loyalty.

    ”As the rise of digital shopping has become an inevitable trend in the retail industry, offline sales channels should seek ways to provide better in-store experiences and quality service,” Jun said. “Squeezing margins is not a sustainable business model.”

    Experts emphasise the government’s role in setting a long-term policy to manage the record-high household debt and steer the economy clear of such economic uncertainties as China’s slowdown and market jitters over a US rate hike.

    “The government should control the pace of the household debt growth so it does not rise faster than the income growth, which could further contract spending,” Ko said.

    “Structural reforms are also needed to foster new value-added service sector for healthier growth.”

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  • Korea’s Coffine Gurunaru plans China foray

    Korea’s Coffine Gurunaru plans China foray

    Korean coffee franchise Coffine Gurunaru is to open one of its largest stores in Hainan, China in the first stage of a planned China rollout.

    The new store is in the middle of Lan Kwal Fong St, the main street of Hainan, and is described as “exceptionally large in size” for a coffee franchise.

    Hainan, sometimes referred to as the ‘Hawaii of the East’, is a major holiday destination for Mainland Chinese.

    Management of Coffine Gurunaru say the extraordinary size of the cafe is relative to the size of the development where it will be located. The world’s largest resort group, Mission Hills, owns resorts, golf courses and shopping malls. It is building the world’s largest K-town in Hainan, where Coffine Gurunaru will open its Chinese flagship.

    The interior will be designed to be “modern and natural”, says a spokesman for the coffee house.

    Korea’s Coffine Gurunaru

    Coffine Gurunaru is a compound name combining coffee and wine. It was the first coffee house in Korea to offer both coffee and wine. Founded in 2007, it has about 120 stores in South Korea, including franchised stores.

    The cafes’ interiors, including the chairs and walls, are decorated in a cheerful purple, intended to refer to the color of wine.

    Besides beverages, the stores serve a range of salads, panini sandwiches, signature cupcakes and honey bread.

    Coffine Gurunaru has not disclosed how many stores it will open in China, but has confirmed it will build a network.

    Korea’s Coffine Gurunaru interior

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  • Question mark hangs over South Korea’s discount spree

    Question mark hangs over South Korea’s discount spree

    People love bargain deals. Clearance sales with 80 percent or more off can even lure customers in to buy things they don’t need.

    That’s why retailers offer “door buster” deals when they need to handle rising stockpiles or attract customers during holiday shopping seasons, such as “Black Friday”, the biggest shopping day of the year in the United States.

    On top of seasonal sales and occasional promotions, major South Korean retailers have been holding a series of big discount events since summer to create an intense, promotion-heavy atmosphere through the Christmas season and beyond.

    The discount binge has indeed given a fillip to consumer spending here, but market watchers question its long-term effect as a slowdown in Asia’s fourth-largest economy has led to lower incomes for many people, prompting them to tighten their purse strings.

    Most recently, “K-Sale Day” kicked off last week to run for 26 days nationwide, led by major department stores and outlets that hope to grab shoppers’ attention ahead of the original Black Friday.

    It came just a month after “Korea’s Black Friday”, a nationwide shopping campaign initiated by the government during the first two weeks of October to jack up the stagnant domestic consumption.

    The government-led event even overlapped with “Korea Grand Sale”, during which retailers knocked down prices from early September to mid-October to woo back both domestic consumers and Chinese travelers during the long-haul national holiday.

    One of the main reasons for the deluge of sales is the summer slump following the outbreak of Middle East Respiratory Syndrome (MERS) in late May, which poured cold water on domestic spending and dented tourist numbers.

    More fundamentally, however, the seemingly never-ending sale is seen as an early sign that South Korea is heading into a recession.

    “Although the domestic economy has long grappled with sluggish consumption, the government is ever more concerned about weak spending after exports showed signs of slowing,” Ko Ga-young, a researcher at LG Economic Research Institute, said.

    “Exporters in the manufacturing sector had propelled the growth until the 2008 global financial crisis, but their prospects remain bleak due to slowdown in the Chinese economy and tougher global competition in the low-end manufacturing sector.”

    Although policy makers had expected that low oil prices and record-low interest rates would boost the economy this year, the fallout from the MERS outbreak prompted the government to lower its 2015 growth forecast from 3.8 percent to 3.1 percent in June.

    The discount events, held both online and offline, did not create much buzz like Chinese e-commerce giant Alibaba’s “Singles Day”, which recorded a blockbuster $14.3 billion in sales on Nov. 11, but the steep discounts did serve as the spending trigger for pent-up demand in a short period of time.

    According to the data compiled by the industry ministry, the 22 retailers that joined the Black Friday Korea campaign saw their sales rise 20.7 percent on-year to 719.4 billion won (US$634.9 million) during the two-week period.

    While the government touted its “successful effort” in reviving the consumer sentiment, the market remained skeptical over the growth from last year’s low base during the extended holiday season.

    “Large department stores and discount chains face an unfavorable business environment because massive sales events and permanent discount policy produced a limited effect despite last year’s low base,” said Nam Sung-hyun, a researcher at Kiwoom Securities.

    Unlike a one-off factor like the viral disease, market watchers worry that the tight labor market and rising household debt could continue to discourage people from spending on concerns over their unstable future.

    The youth jobless rate reached the highest level in 15 years at 10.1 percent in June with more college graduates landing at temporary positions, while the average consumption propensity dipped to a record low 71.5 percent in the third quarter, according to Statistics Korea.

    “The consumption propensity is expected to further decline because households are managing their spending schedule in line with the bleak long-term growth prospect and extended life span,” Ko said.

    Brick-and-mortar shops face an even dimmer outlook as more consumers are hunting for bargains from online marketplaces abroad.

    Traditional retailers not only have to compete with each other but also counter challenges from international online marketplaces stealing their customers with easier delivery and transaction procedures.

    “As more consumers learn they can easily buy products at a much cheaper price via online vendors, offline shops are more frequently conducting discount events to retain their customers,” said Jun Mi-young, a professor at Seoul National University and co-author of Trend Korea 2016.

    “The experience of buying foreign brands at discounted prices has created a healthy dose of cynicism about department stores’ pricing policy.”

    According to U.S. No. 1 retailer Walmart’s Black Friday advertisement, South Korean tech giant Samsung Electronics’ 55-inch HDTV was discounted to $498, less than half prices for similar models sold at Korean department stores.

    Some deals even raise questions over whether retailers set a higher price from the beginning to look like they are giving discounts.

    Lotte Department Store’s K-Sale Day promotional leaflet shows that the price of German kitchenware maker Henkel’s five-star knife block set was reduced from 550,000 won to 229,000 won.

    Sounds like a good deal. But you can buy the same product below 200,000 won at several online shopping malls on any given day. The desperate efforts to grab customers with lower prices, however, come at a price.

    As sales start earlier and last longer, they become less important and easier for consumers to ignore. When every day is special, none is.

    “I used to wait for the discount season to buy off-season clothes or other things at cheaper prices,” Lee Su-jin, a 35-year-old office worker in Seoul, said. “These days, I use mobile applications to buy refurbished products or find good deals at overseas websites.” While the discount pricing strategy is useful in driving traffic and sales for a short term, marketing professionals worry repeated sales could negatively affect the retail industry in the long run.

    To survive in the borderless digital commerce world, they advise brick-and-mortar shops to come up with differentiated services to increase customer loyalty.

    “As the rise of digital shopping has become an inevitable trend in the retail industry, offline sales channels should seek ways to provide better in-store experiences and quality service,” Jun said. “Squeezing margins is not a sustainable business model.”

    Experts emphasize the government’s role in setting a long-term policy to manage the record-high household debt and steer the economy clear of such economic uncertainties as China’s slowdown and market jitters over a U.S. rate hike.

    “The government should control the pace of the household debt growth so it does not rise faster than the income growth, which could further contract spending,” Ko said. “Structural reforms are also needed to foster new value-added service sector for healthier growth.”

     

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  • Lotte Duty Free in shock Seoul licence loss

    South Korea’s Lotte Duty Free has lost the licence to operate one of its large stores in downtown Seoul.

    Beleaguered Lotte – in the midst of a family feud over its management and on the eve of a planned IPO of its Hotels unit – has been displaced by heavy industries company Doosan Co in the 10,990 sqm store in South Korea’s tallest building – the Lotte World Tower and Mall.

    Lotte has had the licence to run the store for five years and sunk US$255 million into the site.

    “The customs agency decision has shattered its ambitions to grow it into the world’s largest duty-free outlet over the next decade,” reported Japan Today newspaper in Tokyo.

    “The setback was particularly badly timed given the preparations for an initial public offering of shares in Lotte’s hotel unit, which runs the group’s duty-free business.”

    Lotte’s duty free business is a subsidiary of Lotte Hotels, contributing 80 per cent of the operation’s revenues.

    Park Jong-Dae, analyst at Hana Financial Securities, said investors are concerned the loss of the licence will hurt Hotel Lotte’s overall profits.

    “As a result, the company’s valuation may fall when it goes public,” he said.

    Lotte Duty Free’s flagship Myeong-dong store is unaffected.

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  • Kakao, KT to launch Korea’s first Internet banks

    Kakao, KT to launch Korea’s first Internet banks

    Two consortiums, led by South Korean Internet giant Kakao and No. 2 telecom operator KT, were approved to launch the nation’s first Internet-only banks next year, the banking authority said Sunday.

    Under the government’s pilot program, the two banks will offer financial services from deposits, lending and credit cards to foreign exchange transactions through their online platforms only — the first of their kind in Korea’s 23 years of financial history.

    Their operations are expected to start after they get financial approval in the first half of next year. The Financial Services Commission requested they come up with stricter security measures.

    Do Kyu-sang, financial services chief at the Financial Services Commission, speaks at a media meeting held at the agency`s briefing room in Seoul on Sunday. Yonhap

    According to the agency, Kakao’s Kakao Bank gained high scores for innovative services based on its immensely popular mobile messenger app KakaoTalk with 40 million users.

    KT’s K Bank was also praised for better customer access as it has teamed up with partners from diverse sectors such as telecommunications, payments and retail, it said.

    Internet banks come as the government looks to open up its financial services sector recently. Internet companies are already jumping into the bandwagon amid the rapid infiltration of online banking and mobile payments here.

    Due to stringent financial regulations, however, they are still required to partner with a licensed bank to launch their own Internet bank.

    Kakao and KT are especially pinning high hopes on “middle-interest loans” that would appeal to small borrowers.

    Currently, top-tier banks offer an annual rate of 3 percent to 5 percent, while the secondary financial institutions such as mutual savings banks or capital services firms charge whopping 15 percent to 34 percent interest rates.

    Internet banks say they can better evaluate the creditworthiness of borrowers based on the data they collect from hundreds of millions of mobile devices — including location, the use of local services and e-commerce transitions.

    Kakao Bank plans to bring Kakao’s traffic resources, big data on users and data analytics, while its bank partners KB Kookmin Bank and Korea Investment Holdings have knowledge of financial products.

    The bank also aims to go global as it has secured ties with Tencent, China’s biggest social-networking and mobile games company, and the U.S. online retail giant eBay, which also owns Korea’s two leading shopping sites Gmarket and Auction.

    “We will ramp up efforts to offer diverse and practical benefits for customers through Kakao Bank,” said Yoon Ho-young, Kakao’s senior vice president.

    K Bank also showed confidence in building a more accurate credit rating system based on KT’s own delinquency customer list and the data collected from its card and bank partners, including Woori Bank, the nation’s second-largest lender in terms of assets.

    “We will expand benefits for small borrowers and start-ups,” said Kim In-hoi, the bank task force leader. “We aim to become the No. 1 Internet bank by offering more convenient on- and off-line services.”

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  • Starbucks Korea to launch ‘Startup cafe’

    Starbucks Korea to launch ‘Startup cafe’

    Starbucks Korea is to launch a ‘startup cafe,’ in partnership with the country’s government, to stimulate innovation.

    The South Korean arm of the world-famous coffee chain Starbucks and the country’s ICT ministry said Tuesday the “startup cafe” will be a place where visitors can share experiences and ideas on starting a new company.

    Starbucks and the Ministry of Science, ICT and Future Planning said they will host venture-related programs, including lectures at one of its stores in central Seoul, in their latest effort to beef up local startups.

    The ministry said around 46,000 startups kicked off in the first half of 2015 in South Korea, adding it is vital to establish an ecosystem where new companies can share their know-how and experiences to keep the trend sustainable.

    The accessibility and openness of cafes are suitable places for startups to gather, the ministry added.

    Starbucks will provide the venue, as well as drinks and food, for participants. It also plans to roll out joint programs, such as a tumbler design competition.

    The Starbucks-supported startup cafes will expand to areas outside Seoul starting next year.

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  • What Are The Key Drivers Of Growth For Estee Lauder?

    What Are The Key Drivers Of Growth For Estee Lauder?

    Focus on the online sales channel, digital initiatives, and revival of its travel retail channel, will be the key drivers for Estee Lauder‘s (NYSE:EL)  growth in the future.  While travel retail showed tremendous growth in 2014, the slowdown in China and natural calamities had a negative impact in 2015.  Estee Lauder feels this setback is temporary and we believe new product launches and initiatives in this segment will boost its revival, and will be a key driver of growth for the company. With booming e-commerce and mobile internet penetration, we believe focus on online sales will be another driver of growth for the company, especially in emerging economies such as China.

    Revival Of The Travel Retail Channel

    In the fiscal year 2014, Travel Retail was one of the highest growth channels for Estee Lauder contributing to 13% of its product distribution. Global Airport retailing information reveals that by 2016, airport retail spending will be $23.2 billion for Asia Pacific, whereas for the Americas and Europe the figures will be $10.1 billion and $12.4 billion. Estee Lauder is leveraging this trend primarily to capture the Asian market. In May 2014, the company launched a flagship boutique at the Detroit Metro Airport, a primary gateway to Asia, via Delta Airlines. This boutique offers a collection of all its luxury brands, High-Touch services, along with other facilities such as a first-class lounge area, free Wi-Fi, and updated information on the flights. Growth in the travel retail channel slowed down in Q4 2015 due to the macroeconomic slowdown in China and spread of MERS virus in Korea, but the company believes this setback is temporary. It is continuing to emphasize  skincare, its most profitable product category, to boost travel retail sales. Estee Lauder recently launched a vast array of products under several brands including Clinique, Bobbi Brown, Jo Malone, Tom Ford, and M.A.C., at the Tax-Free World Association (TFWA) Exhibition, held at Cannes in October. The products include face contouring, eye makeup, lipstick, serums, treatment creams, and fragrances. These new products will be available across Estee Lauder’s travel retail channel. [].We believe revival of the travel retail channel will be a key driver of Estee Lauder’s revenues in the future.

    Focus on Online Channels And Digital Initiatives

    The shift towards online shopping is evident from the tremendous growth in e-commerce.  New York based research agency, L2 ThinkTank.com found that while the global beauty industry grew at 6% in 2013, sales through the e-commerce channel witnessed a 29.1% growth during the same period. To leverage this trend, Estee Lauder is selling 14 of its brands directly to consumers online through approximately 120 of its own e-commerce and mobile commerce sites.  The company also launched  “Forecast,” a mobile application under its Clinique brand, which provides weather information and skin care tips based on weather conditions.  To expand in the Chinese market, Clinique opened its  flagship store on Alibaba’s Tmall. According to the National Bureau of Statistics cited in Statista, the online transaction value of cosmetics retailing in China is forecast to grow by 123% in 2015. Given the market potential, we believe Estee Lauder’s focus on online sales and digital initiatives, around the use of social media and mobile apps for promotion, will be key drivers of its revenue in the future.

     

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  • Korean consumers get cynical

    Korean consumers get cynical

    Korean consumers are becoming cynical about store pricing as they are increasingly exposed to cheaper international online marketplaces and have experienced months of sales and promotions by bricks-and-mortar outlets.

    K-Sale Day, Korea’s Black Friday, Korea Grand Sale are just some of the events that have taken place recently as retailers and government seek to boost consumer spending. This slumped in the wake of an outbreak of Middle East Respiratory Syndrome in late May when people avoided crowded places in an attempt to avoid infection.

    One consequence of that was that more consumers went online for not only essentials like groceries, but also for big ticket items and discovered that these could often be acquired relatively cheaply and with a straightforward delivery process, Inside Retail Asia reported.

    “As more consumers learn they can easily buy products at a much cheaper price via online vendors, offline shops are more frequently conducting discount events to retain their customers,” according to Jun Mi-young, a professor at Seoul National University.

    “The experience of buying foreign brands at discounted prices has created a healthy dose of cynicism about department stores’ pricing policy,” he added.

    Inside Retail Asia highlighted one example – the price of a kitchen knife set slashed by almost 60% in a sale but still more than the price charged by several online shopping malls on any given day.

    And as bricks-and-mortar sales start earlier and last longer, it noted, “they become less important and easier for consumers to ignore”.

    That said, the retail discount events have had some short-term impact, as government data shows that the 22 retailers that joined its own Black Friday Korea campaign saw their sales rise 20.7% year-on-year to 719.4bn Won (US$634.9m) during the two-weeks of the event.

    But “squeezing margins is not a sustainable business model”, Jun pointed out.

    “As the rise of digital shopping has become an inevitable trend in the retail industry, offline sales channels should seek ways to provide better in-store experiences and quality service,” he said. Data sourced from Inside Retail Asia; additional content by Warc staff

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  • Indonesia Invests in KFX Project

    Indonesia Invests in KFX Project

    Korea Aerospace Industries (KAI) signed a provisional contract with Indonesia for the country’s investment in the Korean Fighter Experimental (KF-X) project.

    According to the contract, Indonesia is to bear 20% of the system development cost associated with the KF-X project, which totals 8.67 trillion won, while obtaining a prototype and technical data in return for its participation in aircraft design and component production. The cost is to be shared by KAI and the Indonesian government and KAI and PTDI, Indonesia’ state-run defense company, are to be involved in work sharing.

    KAI is planning to start the development of the system within this year in contract with the Defense Acquisition Program Administration of Korea. At present, Indonesia is working on a similar program under the project name of IFX and is planning to import at least 50 fighter jets from Korea. A total of 18 trillion won is scheduled to be invested in the KF-X project and KAI is looking to sell more than 1,000 fighter jets through the project.

    In the meantime, KAI announced on November 22 that it is working on an autopilot system required for the fighter jets’ low-altitude infiltration and terrain crash prevention based on automatic topographical recognition. It added that it designed a flight control law so that the fighter jets can maintain a level flight under any circumstances.

    According to the KF-X project plan, air-to-air fighter jets are slated to be produced between 2025 and 2028 and air-to-sea and air-to-ground ones are added from 2028. The autopilot system is to be tested from the same year, too.

  • Duty-free industry in crisis of stagnation

    Duty-free industry in crisis of stagnation

    Thousands of jobs are under threat in the wake of the Korea Customs Service’s shock decisions last Saturday in awarding duty-free licenses in Seoul.

    Two major players had their licenses revoked. Lotte Group plans to close its World Tower branch in Jamsil, southern Seoul, that posted 500 billion won ($430 million) revenue last year, and SK Networks’ Walkerhill duty-free shop is being forced to cease operations after 23 years.

    The selection process for duty-free outlets has been criticized as it mandates renewal every five years. Some observers feel this goes against the Park Geun-hye administration’s creative economy drive, which has a key premise of creating jobs by letting companies freely enter promising industries.A total of 2,200 workers are on the verge of losing their jobs at the two operators.

    Regardless of the commitments, a sense of insecurity lingers among new and old duty-free store operators because of the uncertainty over duty-free license renewals in five years.Other affiliates under the Lotte Group umbrella have guaranteed that they will hire workers from the duty-free stores, and new operators – Doosan, Shinsegae and Hanwha (selected in the summer) – have promised to absorb those from SK.

    Han Gyeong-ran, 49, has worked at Lotte’s World Tower branch for 17 years. She is a sales manager at a small-size jewelry brand inside the outlet, but now that the entire store is shutting down in six months, she will lose her job because the jewelry brand is housed at the Jamsil outlet and not the Sogong branch, which will remain intact.

    “I am just at a loss, not knowing what to do to provide for my old age,” she said.

    “I don’t know how you could say getting rid of a company that has invested 300 billion won for a single duty-free outlet and depriving those employees of jobs is what the government describes as job creation.”

    Last year, when Lotte lost its duty-free license at Gimhae International Airport in Busan to Shinsegae and shut down the store, only half of the 390 Lotte employees were transferred to Shinsegae.

    “There are many lawmakers who have remained silent over the verdict this time on the duty-free shop licenses for fear of being mistaken as defending those companies that failed,” said Lee Hahn-koo, a lawmaker with the ruling Saenuri Party. “After proclaiming it would produce more jobs, the government is actually doing the opposite, which is preposterous.”

    Before the Park government introduced a new system in 2013 that put each license up for open competition every five years prior to expiry, renewal for downtown duty-free shops was a semi-automatic, rubber-stamping process for 10 years at a time.

    Martin Moodie, chairman of the Moodie Report, a U.K.-based online publication devoted to the global travel retail and duty-free sector, told some Korean media outlets in 2013 that weakening duty-free shops in their home market “seems a misguided and short-sighted step.”

    “The five-year deal is a disaster and will kill what little quality there is. The margin pressure on brands will get far worse, too,” a senior executive for one of the world’s leading luxury brands was quoted as saying by the Moodie Report on Sunday.

    He added that some leading brands may opt in the future to position themselves in Korean domestic stores with permanent high-quality environments rather than facing a potential change in duty-free retail partners every five years, given there is “no difference between Korean duty-free and tax-refund pricing [depending on foreign exchange rates].”

    Companies that had their license renewed or newly issued may not have time to celebrate as stumbling blocks lie ahead.

    A group of lawmakers led by Rep. Hong Jong-haak from the main opposition New Politics Alliance for Democracy has proposed a revision of a bill that will force duty-free store operators to pay 100 times the licensing commission they are paying now – from 0.05 percent of annual revenue to 5 percent.

    That means the Sogong branch of Lotte Duty Free will have to pay 10 billion won in commission to the Korea Customs Service each year after the revision, when it currently pays 1 billion, or 0.05 percent of the 2 trillion won annual revenue.

    If approved, the move will inevitably force duty-free shops to hike the prices of goods, which will lead to Korea becoming less attractive to tourists, particularly big-spending Chinese, and shrinking tourism to Korea.

    The Korean government’s process goes against systems in Europe and neighboring countries such as China, Japan and Taiwan, which have been ramping up their duty-free industry as its golden goose that draws huge foreign currencies.

    The Korean duty-free business has grown exceptionally in the last five years. Earnings from duty-free have exceeded that of China and the United States and held the No.1 spot since 2012. According to a survey by the Korea Tourism Organization, the biggest reason foreigners visit Korea was to shop. In fact, 72 percent of the poll picked shopping. As a result, the Korean duty-free business raised $7.78 billion last year.

    But a change in duty-free licensing regulations will force companies to become very cautious in their investment strategies and wary of business expansion.

    Lotte was not alone in heavily investing in expanding its duty-free business. Walkerhill recently invested 100 billion won in doubling the size of its duty-free stores. It was scheduled to open up next month.

    The licensing regulation is also likely to affect future plans, even for newcomers such as Doosan.

    “It takes a huge amount of investment when starting a duty-free business, and it takes a minimum of 10 years before it settles,” said Choi Young-soo, former chairman of the Korea Duty Free Association and former vice president of Lotte Hotel in charge of the duty-free business. “If you have to get government approval every five years, who would invest a large amount and even hire regular employees?

    “When doing business whose main customers are foreigners, whether a company monopolizes is meaningless. If we continue with such a policy, we will loose the Chinese tourists to the Japanese.”

    Han Enny, CEO of Enny Trading Corporation, which supplies cosmetics to duty-free stores including Lotte and Walkerhill, was frustrated at the recent licensing decision.

    “We have products shipping in that we plan on supplying to the duty-free stores next spring, but it seems we would have to cancel those orders,” Han said. “We have built our credibility for years just to get a contract with foreign companies, but it seems it’s all going to crumble.

    “Luxury companies’ products that have high demand from Chinese consumers make trade relations based on long-term trust, but if this continues, they wouldn’t be interested in opening up stores in Korean duty-free stores.”

    Other countries have been taking the opposite direction in their strategies as they have realized how lucrative duty-free businesses can be.

    Swiss duty-free retailer Dufry was ranked No. 2 in the world in 2013. But it recently became the biggest in the industry, bumping off previous No. 1 DFS, after buying another Swiss duty-free retailer that was ranked the world’s No. 7, Nuance Group, last year and adding Italy’s World Duty Free in August. LS Travel Retail, the French duty-free retailer and world’s No. 4, expanded further when it bought North American duty-free business Paradises in August.

    As of last year, the world’s top four duty-free companies accounted for 25 percent of the duty-free market, a sharp increase from the 16 percent in 2010.

    “The duty-free business in a core pillar in a country’s tourism industry development,” said Kim Seung-wook, a economics professor at Chung-Ang University. “The customs service agency needs to focus on lowering the entry level of duty-free stores and think more on ways to help foreign tourists open up their wallets, rather than focusing on regulations.”

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  • Costco Korea starts selling online

    Costco Korea starts selling online

    The American membership-only warehouse club Costco Wholesale Korea has opened its online shopping mall this week.

    It is the first among the Asian countries Costco has entered, and its fifth international online shopping site after the US, England, Canada and Mexico.

    Customers who are Costco Korea members who register online can shop online at the store.

    The products sold are categorised under 11 different groups: digital, home electronics; furniture, home interior, toys, Christmas; sports, fitness; garden, patio; clothing, fashion accessories; jewellery, watches, accessories; beauty, health; tools, living, cars; stationery, office supplies; and food.

    Compared to other online malls which don’t have a paid membership, the number of items offered is much lower. All prices include shipping.

    Costco has chosen to abstain from selling fresh food online. This could be interpreted as an acknowledgement that the company currently doesn’t have a distribution system fast enough to assure the freshness of the products. For now, customers will be able to purchase processed foods, grains, dried foods, and snacks.

    Industry observers say that since Costco’s online mall lacks fresh food, and has a lot of foreign brands among the products it carries, its pool of consumers should not overlap with domestic retailers.

    Furthermore, the fact that only customers with current membership can use the online mall is another limitation of Costco’s internet penetration potential.

    However, based on the success Costco has achieved through its domestic offline stores, some observers are predicting that once Costco expands its logistics infrastructure, increasing the number of products it can handle and distribute through the online site, its influence on the domestic online market could be great.

    Costco already ranks No.1 in consumer satisfaction among the five largest hypermarket retailers in Korea (Emart, Homeplus, Lotte Mart, NH Hanaro Mart, Costco), according to a report from the Korea Consumer Agency.

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  • John Lewis Asian stores ‘trading well’

    John Lewis Asian stores ‘trading well’

    UK department store operator John Lewis has hinted at its trading performance in Asia as it announced another offshore expansion – into the Netherlands.

    John Lewis chose Singapore as the first of 15 new international markets it plans to expand into back in March this year.

    Two John Lewis Singapore concessions were opened inside Robinsons department stores, last July, primarily selling homewares.

    Andy Street, John Lewis MD, mentioned overnight: “Our existing shop-in-shops in Singapore, the Philippines and South Korea have been well received and are trading well.”

    John Lewis opened 14 shop-in-shops across Singapore and the Philippines this year, and seven shop-in-shops in South Korea last year.

    The first Dutch shops will open in spring 2016 at de Bijenkorf’s flagship stores in Amsterdam, Rotterdam and The Hague – its first stores in continental Europe.

    And more may follow, especially in Asia.

    ‘Whilst we remain committed to our UK physical expansion we hope to announce more international collaborations in 2016,” said Street.

    The UK retailer was founded in 1864, but until last year it had never traded outside England, Scotland and Wales. In 2012 it entered into a partnership with South Korea’s Shinsegae Department Store Co, selling linen and homewares in seven stores.

    Street said in March he expected to confirm deals to open in a further five foreign markets in 2015. That could mean four more markets to be announced over the next six weeks.

    “We have been very successful in Korea. We are really pleased and surprised that, in a market where the John Lewis brand isn’t really known, it has cut through.”