SOUTH KOREA. Hotel Shilla, parent company of The Shilla Duty Free, has outlined its rationale for its decision to exit its DF1 concession (perfume & cosmetics, liquor & tobacco) at Incheon International Airport (it will retail its DF3 fashion and boutiques contract), tentatively due to take effect on 17 March 2026.
As reported, Shilla’s decision follows Incheon International Airport Corporation’s (IIAC) formal rejection on 16 September of Incheon District Court’s mediation order in favour of -25% and -27.5% rent reductions, respectively, for it and Shinsegae Duty Free’s concessions in question.
IIAC will now need to call a new tender, covering at least DF1. But first it will be awaiting Shinsegae Duty Free’s next move.
Shinsegae Duty Free said reports in another international travel retail title saying it had served notice of exiting its DF2 contract were incorrect.
“Shinsegae Duty Free has not decided to withdraw from Incheon International Airport. We are currently reviewing the situation from multiple perspectives before making any decision,” the company told The Moodie Davitt Report.
Hotel Shilla told The Moodie Davitt Report this morning: “On September 18, Hotel Shilla’s Board of Directors resolved to return the Incheon International Airport Duty Free DF1 concession, and the related disclosure has been made accordingly.
“Since signing the concession agreement in 2023, the travel retail market has faced a rapid shift in conditions, including changes in consumption patterns among our key customer segments and a decline in purchasing power.
“Although we requested a rent adjustment from Incheon International Airport Corporation, the request was not accepted.
“Given the significant losses associated with continuing operations at Incheon Airport, Hotel Shilla has made the difficult decision to return the DF1 concession in order to improve our financial structure and enhance corporate and shareholder value.
“While challenges in the duty free industry persist, we remain committed to doing our utmost to improve profitability.”
Background to an exit
Following IIAC’s rejection of the mediation order, both retailers were faced by a choice of two unenviable options – proceed to a full lawsuit or withdraw from their respective contracts. Despite facing heavy termination penalties of around KRW200 billion (US$144 million), Shinsegae and Shilla had earlier threatened to terminate their concessions if negotiations were unsuccessful.
“Due to the expected excessive deficit, the continuing operating value is judged to be less than the liquidation value,” Hotel Shilla said in its regulatory filing yesterday (18 September) to DART, South Korea’s official electronic disclosure system.
“While a short-term decline in sales is expected, we anticipate a significant improvement in the company’s overall financial performance in the medium to long term.
“Along with risk management, we are pursuing overall business growth strategies,” the company concluded.
Litigation would likely take years and involve not only big legal expenses but recurring, likely escalating, losses at Incheon. While the temporary new visa-free status for Chinese visitors being introduced on 29 September (until 30 June 2026) is set to revitalise tourism, the influx may actually worsen both retailers’ position.
That’s due to the per-passenger rental structure – if arrivals surge but spending doesn’t, as appears likely given the prevailing soft Chinese consumer sentiment, the retailers will end up paying more.
IIAC is concerned that by agreeing to any reductions, whether court-driven or not, it would be creating a dangerous precedent for future tenders while also opening itself up to legal challenges from any unsuccessful bidder – notably Lotte Duty Free – in the 2023 contest.
In rejecting the court’s verdicts, IIAC President Lee Hak-jae stated: “If IOAC reduces the rents of the two duty-free shops in compliance with the court’s compulsory mediation order, it would undermine the very foundation of the Public Contracts Act.”
Earlier this month IIAC was quoted by the Kyunghyang Shinmun media title saying: “If this kind of adjustment is made, in the future if the bidder with the highest bid is selected and then runs a deficit, the way will open up for them to apply to the court for mediation and receive a rent reduction.” ✈
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