SOUTH KOREA. Minister of Economy and Finance Hong Nam-ki today announced a range of critical additional relief measures for the airport retail sector, which has been devastated by the COVID-19 crisis. The measures (see below) include an across-the-board move from MAG-based rents at Incheon International Airport to a variable percentage of turnover formula.
Unlike previous relief initiatives that prioritised assistance to smaller companies, the government measures announced today are provided regardless of corporate size. While the official announcement only mentioned Terminal 1 at Incheon International Airport, it is understood the measures apply to both terminals at the country’s leading gateway. Incheon was the world’s number one location for airport duty free sales in 2019.
COVID-19 has had a material impact in South Korea, the world’s largest duty free market. Airport commercial sales in July declined by -73.6% year-on-year while as of late July, 56.4% of retail stores in the country’s airports were closed and 40.6% of staff were either on unpaid leave or away from their roles for various reasons related to the crisis.
The new measures were agreed by the Ministry of Economy and Finance and the Ministry of Land, Infrastructure, and Transport. Prior to today’s announcement, existing relief measures were set to expire at the end of August.
Here is a summary of the changes:
- Critically, duty free concessionaires at Incheon International Terminal 1 will see their contract terms changed from a minimum annual guarantee basis to a variable percentage of sales formula (see table below).
- Previously, rent payment for March to August this year was deferred until September 2020 to February 2021. This measure was designed to help company’s liquidity issues. The payment amount due for March to August has been delayed further to January to June 2021.
- Previous conditions that stipulate rent returns to normal if traffic reverts to 60% of normal traffic are changed to a new 80% threshold. The new contract terms will continue until December 2021 or when passenger traffic recovers to 80% of 2019 traffic level.
- The suspension of concession rent due at airports that have seen domestic flights suspended has now been extended to large and medium sized companies. This relief measure was previously only afforded to small companies.
- The government’s announcement was widely heralded by the major travel retailers in Korea and provides a lifeline to the Incheon International Airport Terminal 1 tender which is set to receive bids in September.
A Lotte Duty Free spokesperson told The Moodie Davitt Report: “We appreciate the government’s rent relief measures, particularly the full rent cut at Gimpo and Gimhae airports. We will continue to do what we can, including prevention of epidemics at our stores as well as workplace and employment stabilisation.”
The news will be particularly welcomed by Hyundai Department Store Duty Free, which is set to begin its new DF7 (fashion & miscellaneous) concession in Terminal 1 next month.
Shinsegae Duty Free, too, will be encouraged. Its current IIAC relief package means that it is paying 50% of its MAG on its concessions (DF1 perfumes & cosmetics; DF5 leathergoods & fashion; DF8 miscellaneous categories) but that agreement was due to expire at the end of August. The new terms will now kick in.
As reported, Lotte Duty Free and The Shilla Duty Free were already operating on variable terms in T1 on extended rolling contracts. Their concessions, which were due to expire in August, are continuing under the revised terms until new concessionaires are in place following the new T1 tender due to be launched in September.
As reported, licences available include DF2 (perfumes & cosmetics across 1,258sq m), DF3 and DF4 (both liquor & tobacco, across 570sq m and 547sq m respectively) and DF6 (luxury goods across 1,887sq m). In addition, two licences for small and medium-sized enterprises are on offer: DF8 (929sq m) and DF9 (937sq m), each covering all categories.
