Lotte Duty Free to take over Changi Airport's liquor, tobacco business from DFS

SOUTH Korean travel retailer Lotte Duty Free has snagged the liquor and tobacco concession tender at Changi Airport, replacing longtime tenant DFS Group.

Lotte will start operations next June at the 18 stores spanning over 8,000 square metres of retail space across the four terminals. Its tenancy will last six years from June 9, 2020 to June 8, 2026.

This will be the first time a new operator helms the airport's duty-free liquor and tobacco stores, Changi Airport Group (CAG) said on Thursday.

In August, DFS announced it will exit the business after a four-decade tenure. It declined to bid in CAG's tender exercise for the new concession, due to tighter regulations, geopolitical uncertainty, and "steep losses" incurred at the operations.

In the tender which closed on Aug 26, Lotte was one of the bidders, together with South Korea's The Shilla Duty Free and Germany's Gebr Heinemann, according to travel retail industry publication The Moodie Davitt Report.

This was CAG's most significant leasing exercise since the last round of tenders were conducted in 2013 for the liquor and tobacco concession as well as the perfumes and cosmetics concession.

CAG on Thursday said Lotte's proposal stood out with its "strong omnichannel and marketing ideas".

Lotte, the world's second-largest travel retailer in terms of sales turnover, has extensive experience in the industry including in the liquor and tobacco segment. It has concession experience in markets such as Australia, Japan, New Zealand, South Korea and Vietnam, operating at a scale similar to that at Changi Airport, CAG said.

With Lotte's arrival, all 18 stores at the airport will be given makeovers to appeal to new consumer segments, in particular the millennials. The iconic duplex store at Terminal 3 will also see a complete revamp of its store facade. Renovation works will be conducted in phases.

In addition, some stores will feature product personalisation, such as customised whiskey-blending. They will also sport new liquor boutique concepts and curated zones with the latest products.

Lim Peck Hoon, CAG executive vice-president for commercial, said that Lotte's proposal was aligned with CAG's vision to offer passengers new "retail-tainment" initiatives using smart technologies.

"Lotte also demonstrated a keen understanding of the market environment with a sound business plan supported by a competitive financial bid and backed up by solid business fundamentals," Ms Lim added.

CAG said the transition towards the start of the new concession will be planned "carefully" with both the incoming and outgoing tenants.

DFS conducted a retrenchment exercise in September, laying off airport staff working at the liquor and tobacco operations as well as employees at the T Galleria in Scottswalk and at DFS's shared services centre in Chai Chee.

Minister of Manpower Josephine Teo said that DFS could have better handled its layoffs, particularly the way it communicated with the staff and how it offered severance packages.

In response, DFS said it has in place a series of measures to help the affected staff over the next few months, such as career coaching and counselling services.

DFS had told The Business Times in August that some 500 people are directly employed at its airport liquor and tobacco operations, and that they would have the option of working with the new operator or with other operators in the airport, and some may also be deployed to other DFS locations in Singapore.

CAG's statement on Thursday did not mention manpower plans for Lotte's new tenancy.

DFS continues to operate luxury concession businesses at the airport, which consist of two watch stores at Terminal 2 retailing brands such as Tag Heuer and Seiko.