SOUTH KOREA. Incheon International Airport Corporation (IIAC) has pushed back the timing of its planned duty free Request for Proposals (RFP) at Terminal 1. It covers six concessions that were previously tendered earlier in the year, but that resulted in no bids or withdrawn offers, writes The Moodie Davitt Report Senior Retail and Commercial Analyst Min Yong Jung*.
Tender registration, which was set for the period between 7 and 14 September, has been delayed to 14-21 September. The Business & Financial Proposal deadline is now 22 September – it was previously 15 September. The delay provides more time for retailers to review the RFP and decide if they will bid.
The six concessions that are being retendered are for Large Conglomerates (DF2, DF3, DF4, DF6) and Small and Medium Sized Enterprises (DF8, DF9)
As earlier reported, the minimum rent is -30% lower than requested under the original tender conditions. Tenants will pay rent at a pre-agreed commission rate by category until passenger traffic normalises to levels at least 80% of those in 2019.
The move to lower risk associated with passenger traffic recovery was well received by Korean retailers who had urged this move to IIAC. The latest relief measures announced by the Ministry of the Economy and Finance last week has resulted in retailers reviewing the RFP with more enthusiasm.
Another change outlined in the RFP stipulates that the first year’s Minimum Annual Guarantee (MAG) cannot be higher than the MAG in the second year. Concession rent payment at Incheon International Airport is usually fixed on the MAG proposed in the financial proposal for year one and then fluctuates based on passenger traffic. The amendment appears to be IIAC’s effort to prevent bidders forecasting lower traffic in the second year.
Despite the difficult trading period currently, Hyundai Duty Free begins its duty free operations at Incheon International Airport Terminal 1 this month. The company has followed through with its obligations to open after being awarded concession DF7 last March. The addition of the airport operations and its expansion downtown (where it has two stores) could see Hyundai Duty Free’s market share in Korea expand from 2.7% in H1 2020 to above 5%.
The government’s announcement last week to extend relief measures for tenants comes at an opportune time for Hyundai Duty Free. The company will benefit from considerable rent savings and has enhanced its relationship with IIAC in following through on its pledge to open even in these tough times.
Downtown duty free licence update
In July the Korean government announced a plan to offer two new downtown duty free licences to the market this year, one in Seoul, the other in Jeju. That followed a decision by a review committee that there was room for more stores in the channel, as reported.
Now the tender for these licences, which were due to go to market in August, could be pushed back even beyond September, according to Korean sources. Speaking to Jeju Daily, Ministry of Economy and Finance Seungha Jin said that “numerous complications” meant that the timing could not be firmed up. Jaeyong Lee from Korea Customs Service (KCS) told the media title that “there are numerous issues that need to be discussed with the Ministry of Economy and Finance so we can’t say exactly when the tender will be announced.”
Despite the government’s decision to issues new permits in Seoul and Jeju, the Jeju regional government has reiterated its disapproval of a new duty free store on the island. It stated: “We can’t understand the government’s announcement that Busan and Gyeonggi were overlooked because of COVID-19 negative impact but Jeju – where the damage was worst – was chosen as a site to issue a new licence. We have met with the Ministry of Economy and Finance and KCS to deliver our negative opinion and requested the agencies to withdraw the new licence issue in Jeju.”
Both Lotte Duty Free and Shilla Duty Free already have downtown duty free stores on Jeju Island, which leaves Shinsegae Duty Free and Hyundai Duty Free as potential bidders for the new licence there. While Shinsegae is understood to be strongly interested, Hyundai Duty Free may also wish to continue its aggressive business expansion by vying for the licence. When approached by The Moodie Davitt Report, both commented that any decision to bid can only be reviewed after a tender has been formally announced.
*Note: Korean national Min Yong Jung, formerly based in London and now in Seoul, is Senior Retail and Commercial Analyst at The Moodie Davitt Report. His appointment in June 2019 was the first of its kind in travel retail media. It marked the creation of the Moodie Davitt Business Intelligence Unit, a new division designed to provide a previously unseen level of research and analysis for the travel retail channel.
Do you have research needs related to the Korean and Asia Pacific travel retail and luxury markets? Min Yong Jung can be contacted at minyong@moodiedavittreport.com
