SOUTH KOREA. Incheon District Court has, as anticipated, issued an order for Incheon International Airport Corporation (IIAC) to grant a substantial rent reduction to Shinsegae Duty Free for its Terminal 1 and Terminal 2 concessions at Incheon International Airport.
The -27.2% reduction decision, issued on 12 September, follows a -25% ruling in favour of fellow Incheon tenant The Shilla Duty Free earlier in the month.
However, neither ruling is enforceable and, as with Shilla, IIAC has indicated it will immediately file an objection. “We cannot accept a rent reduction of -1% or -50%,” it told Yonhap TV News.
As reported, the two retailers are in a bitter row with IIAC after the airport company’s refusal to agree to -40% fee reductions relating to their respective T1 and T2 concessions.
Despite facing heavy termination penalties of around KRW200 billion (US$144 million), both retailers have threatened to terminate their contracts if negotiations are unsuccessful.
While much is being made in the Korean media about the positive impact of the tempoary new visa-free status for Chinese visitors being introduced on 29 September (until 30 June) on tourism, the influx may actually drive escalating losses at Incheon.
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.
According to the Yonhap TV News report, July duty-free sales at Incheon decreased by -8.6% year-on-year year while per-person spending slumped -16.4%.
Given IIAC’s position, Shilla and Shinsegae have two options – litigate or walk away from their contracts. The former route would likely take years and involve not only big legal expenses but recurring, perhaps escalating, losses at Incheon.
“The chance of winning in court for the retailers is very slight,” one informed source told The Moodie Davitt Report. In that case an unprecedented dual retailer withdrawal looms, followed by a rebid. ✈
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