Travel Retail and Duty Free Business Intelligence    Monday 21 April 2014

NEWS

Lotte Duty Free named recommended bidder for Guam airport

Published: 12/04/13

Source: Pacific News Centre; The Moodie Report VIP News Alert

By Martin Moodie

"We sought to leave no stone unturned in putting together the best possible proposal for Guam"
Won-Jun Lee
President
Lotte Duty Free
GUAM. In major breaking news, Guam International Airport Authority (GIAA) is set to award the controversial duty free and specialist travel retail concession at A.B. Won Pat Guam International Airport to Lotte Duty Free.

GIAA announced that its Evaluation Committee had ranked Lotte Duty Free as the number one bidder and approved the commencement of negotiations to award the concession.

The new agreement runs for ten years – the first five exclusive and the balance non-exclusive. It covers liquor & tobacco; perfume & cosmetics; fashion boutiques; accessories; watches; confectionery & packaged foods and destination merchandise, across over 24,076sq ft of retail space.

The contract has been held for many years by DFS Group. Along with the incumbent and Lotte, the bid was contested by JR Duty Free and The Shilla Duty Free.

DFS declined to comment when contacted by The Moodie Report but will be bitterly disappointed by the decision. The company pioneered the duty free and travel retail business in Guam and also operates a downtown Galleria in the US unincorporated territory. A protest against the decision is a possibility although DFS Vice President for Market Development Jim Beighley told Guam News that it was too early to comment on the chances of such a move.

Lotte Duty Free Guam CEO Steve Park told The Moodie Report: "Lotte Duty Free is extremely excited and honoured to have been named as the number one and recommended bidder for the duty free concession at Guam Airport and we are looking forward to working with the airport to finalise the concession.

"Lotte will be a genuine partner to Guam and will invest in the island and its people"
Steve Park
CEO
Lotte Duty Free Guam
"We submitted a confident financial offer that will significantly increase non-aeronautical revenues to the airport, but more importantly delivered a highly creative non-financial proposal that will reinvigorate the airport facility and bring a real sense of excitement to travellers' first and last impressions of Guam.

"Lotte will be a genuine partner to Guam and will invest in the island and its people. With our knowledge of Guam’s key tourism markets – particularly Japan and Korea, and increasingly China and Russia – and the strength of the Lotte brand, we firmly believe we can make a huge contribution to Guam’s economy."

Guam is the largest and southernmost of the Mariana Islands and enjoys particularly strong tourism business from Japan, as well as other key travel retail source markets such as South Korea and Taiwan, factors that made the concession highly desirable to Lotte.

Lotte acknowledged those factors in a statement which said: "As a favourite holiday destination of Japanese and Korean tourists, Lotte’s bid was built on its unrivalled knowledge of these consumers through its duty free operations in key Asian markets, including largest retail operation at Seoul’s Incheon Airport - the world’s single largest airport duty free sales location.

"Along with Lotte Duty Free’s ability to cater to these key target nationalities, and its strong brand loyalty through high-profile, celebrity-driven Star Marketing campaigns, Lotte also demonstrated a high level of localisation in its proposal through a wide range of local products and the strong sense of Guam reflected in the store design concept."

The result is a major boost to Lotte Duty Free's strong international ambitions. In The Martin Moodie interview to be published next month in The Moodie Report Print Edition, Lotte Duty Free President Won-Jun Lee says the company is targeting global top two status in travel retail by 2018, following a barnstorming year in 2012, a successful offshore debut in Indonesia and phenomenal growth in its Chinese business.

Lotte posted a +16.6% increase in sales within South Korea last year to US$2.845 billion.

UPDATE: Reacting to today's announcement, Won-Jun Lee commented: “Lotte Duty Free is delighted to start negotiations with Guam International Airport Authority, as the first stage in an extremely close and mutual beneficial partnership for our two organisations.

"We sought to leave no stone unturned in putting together the best possible proposal for Guam, and we are proud that this completeness – from marketing and merchandising through to store design and the operational plan – has been recognised.

"Following on from our expansion into Indonesia at Jakarta’s Soekarno-Hatta Airport and the opening of our luxury and fashion stores at Singapore Changi, we believe Guam can be a further important milestone in the expansion of our business and is further proof of our growing international credentials, towards our objectives of being a top two global duty free retailer by 2015.”

The airport news follows on from the recent announcement of Lotte Hotels and Resorts’ multi-million dollar investment in the Aurora Resort & Spa in Guam. Lotte Hotels & Resorts plans to transform the facillity into Guam’s most luxurious hotel and re-open it under Lotte Hotel’s brand name by the end of this year.

DOWNTOWN STORE TO FOLLOW?

Referring to Lotte’s plans for investment in Guam, Lee said: “Lotte intends to be a long-term partner to the island and people of Guam. Significant investments in the Aurora resort and improvements to the airport, as well as the potential opening of a downtown duty free store to complement our operations at the airport will all help to stimulate the local economy and create new opportunities for Guam.

"We have recognised the potential to create something special in Guam which the entire island can share in, and intend to forge strong links with the community and local businesses to see that potential realised.”

Recent annual sales by financial year (1 October through 30 September):

FY 2008: US$34,107,734.33
FY2009: US$29,578,461.00
FY2010: US$30,793,206.00
FY2011: US$34,815,148.00
FY2012 (through till May 2012): US$23,781,398.17

GIAA RELEASE

Here are excerpts from a GIAA statement, also published by Pacific News Centre and Guam News: The GIAA Executive Manager approved the recommendation of the Evaluation Committee and recommended to the GIAA Board of Directors that they also approve the recommendations of the committee.

Today the GIAA Board of Directors approved the request by the Executive Manager to adopt the ranking results of the evaluation committee. The proposer ranked number one and approved to commence negotiations of a concession agreement is Lotte Duty Free.

Although the terms of Lotte Duty Free’s proposal remain non-public until final contract signing, under the RFP, all proposers were required to meet certain minimum qualifications, including:

* At least five (5) years of continuous experience Within the last seven (7) years in the Ownership and management of a similar type of retail merchandise business as that which is contemplated under the RFP.

* At least one single location operated by the Proposer must have had gross sales of at least $25 million per year for each of the five (5) qualifying years.

* Demonstrated history of having successfully operated Within a TSA (or foreign equivalent) administered or controlled airport environment.

* Evidence of Proposer’s ability to finance and undertake the financial commitments required to successfully develop, construct and operate the proposed concession.

* Proposed Minimum Annual Guaranteed Rent (MAG) in an amount equal to or exceeding $6,000,000~00 each lease year


Pacific News Centre reported that the GIAA Board voted 3-0 for candidate 'A' which turned out to be Lotte Duty Free. GIAA Board Chairman Frank Santos and Board Member Linda Tolan stood down from voting, saying they wanted to avoid any appearance of a conflict of interest after they accepted but then returned gifts that came from Lotte [while on a Guam Visitor Bureau trip to Korea for the launch of the inaugural Guam-Seoul Jeju Air flight -Ed].