Duty-free retailers ponder next move after Incheon International Airport Corp rejects court mediation orders for rent reductions

SOUTH KOREA. Following Incheon International Airport Corporation’s (IIAC) formal rejection yesterday (16 September) of Incheon District Court’s mediation order in favour of -25% and -27.5% rent reductions, respectively, for The Shilla Duty Free and Shinsegae Duty Free T1 and T2 retail concessions, both parties are considering their next move.

Despite the court decisions in favour of the retailers, neither ruling is legally enforceable.

“As reported, Incheon International Airport has rejected the court’s mediation order. We regret that the airport authority has chosen not to accept the court’s decision,” a Shinsegae Duty Free spokesperson told The Moodie Davitt Report.

“Our company will carefully review the situation and determine our course of action with due consideration.”

The Shilla Duty Free’s reaction was similar, a spokesperson telling us, “Regarding the court mediation on rent reductions, our comment is as follows. We are reviewing our future course of action from multiple perspectives.”

Essentially those courses of action for both retailers will boil down to a choice of two options – proceed to a full lawsuit or withdraw from the contract. Despite facing heavy termination penalties of around KRW200 billion (US$144 million), both Shinsegae and Shilla had earlier threatened to terminate their concessions if negotiations were unsuccessful.

Litigation would  likely take years and involve not only big legal expenses but recurring, likely escalating, losses at Incheon. While the tempoary 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.”

As reported, the two retailers have been in a prolonged row with IIAC after the airport company’s refusal to agree to -40% fee reductions relating to their respective T1 and T2 concessions. After that was rejected, both parties applied for court mediation.

“I expect the contracts to be rebid,” an informed source told The Moodie Davitt Report. “The retailers’ chances of winning remains very slight.” ✈