SOUTH KOREA. Incheon International Airport Corporation (IIAC) is planning to conduct an open tender for the duty free contracts currently held by Lotte Duty Free and The Shilla Duty Free in Terminal 1, where the current concession extensions expire at the end of February.
Both retailer’s concessions expired in August but were extended for six months after new bidders backed out amid a worsening COVID-19 pandemic. Under the Korea Customs Act, contracts can only be extended once.
Head of Concessions Development Group Bum-ho Kim told The Moodie Davitt Report: “We are now reviewing the contract conditions to open the new bidding in March or April.” IIAC hopes to have new retailers in place by July but in the interim period is negotiating with fellow Incheon Airport retailers Shinsegae Duty Free and Hyundai to take up some temporary space currently occupied by their bigger rivals.
“It’s a very difficult situation for us and for Lotte and Shilla as well because we have a licence extension period until end of February but we cannot get new bidders for the space unfortunately,” Kim said. “So we are trying to have temporary shops operated by Hyundai and Shinsegae… and while we cannot employ all the Lotte and Shilla employees for the interim stores we are doing our best to hire them.”
Shinsegae Duty Free and Hyundai Duty Free still have some years to run on their T1 contracts. Asked about the T1 contract terms (for which temporary licences will need to be granted by Korea Customs Service), Kim said a low percentage rent formula would be applied to the Hyundai and Shinsegae temporary contracts if agreements are reached.
Kim said that the airport company is currently awaiting the arrival of a new CEO before proceeding with an open bid for the new contracts. Former Vice Minister for Transport Kim Kyung-wook has been nominated as the ninth President and CEO IIAC to replace Koo Bon-hwan, who was dismissed in September. Kim’s appointment requires the recommendation of Minister of Land, Infrastructure and Transport Byeon Chang-heum and must be approved by President Moon Jae-in.
Kim confirmed that the tender would be open to international retailers, while acknowledging that the current market climate makes it very difficult for companies to start new businesses – even local giants such as Lotte and Shilla. “We are thinking about how we can ease the tender conditions to attract the bidders,” he told The Moodie Davitt Report. “If possible, we will open the bidding in March after talking with the Korean Customs office… hopefully in July we will have new operators to open the shops. So the temporary shops will be place from March until July maybe. That’s our timeline.”
The new bid will represent the fourth attempt to secure tenants for the T1 contracts, after all earlier efforts failed to attract more than the two offers per contract required under South Korea’s Public Procurement Law.
The prolonged situation underlines the dire impact of the pandemic on passenger traffic and therefore spending at what has historically been the world’s number one or number two airport duty free location alongside Dubai Duty Free at Dubai International Airport.
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