Korean court appoints Samil PwC to assess fair Incheon rent levels for Shilla and Shinsegae

SOUTH KOREA. The Incheon District Court has appointed advisory firm Samil PwC (the Korean member firm of PricewaterhouseCoopers) to assess ‘fair market rent levels’ for The Shilla Duty Free and Shinsegae Duty Free. This follows the two retailers’ recent requests for -40% fee reductions pertaining to their Incheon International Airport Terminal 1 and Terminal 2 cosmetics, perfume, liquor, and tobacco stores.

As reported, Shinsegae Duty Free filed an application for rent adjustment on 29 April, while The Shilla Duty Free followed suit on 8 May.

Following the court’s creation of a formal arbitration process, the court has commissioned Samil PwC to reassess fair market rent levels based on what would be expected in any new bid.

Shinsegae Duty Free confirmed details of the process to The Moodie Davitt Report. After an initial court mediation on 30 June, a follow-up meeting will be held on 14 August. This will include the Samil PwC recommendation.

An article published by leading Korean news agency Naver and supplied to The Moodie Davitt Report by a retailer source quoted unnamed ‘legal representatives’ from both companies saying, “If the mediation fails, Shilla and Shinsegae Duty Free will withdraw from Incheon Airport’s duty-free shop and a re-bidding will take place, and Incheon International Airport Corporation will suffer greater losses as the new rental level will be significantly lowered.

“We believe that an appropriate rental adjustment is also beneficial to the corporation.”

However, the court, just like Incheon International Airport Corporation, finds itself in a tricky position.

Accepting significantly reduced rental times, admittedly in the face of radically changed circumstances, is fraught with problems, not just in terms of financial damage to the Corporation but also that such a move might prompt a challenge from Lotte Duty Free.

The Korean travel retail powerhouse has been out of Incheon International Airport altogether since its lowball bid on the 2023 mega-tender.

That approach was based on a cautious view of existing and future market conditions and the potentially punitive cost of doing business at Incheon. Why should its rivals benefit from being less prudent, Lotte Duty Free may ask?

Lotte Duty Free’s prudence in the 2023 bid, as the company implies to The Moodie Davitt Report, would almost certainly prompt it to challenge any relief given to its rivals.

The possibility gains credibility from comments made by Lotte Duty Free to The Moodie Davitt Report in May.

As reported, Lotte Duty Free (through Hotel Lotte and Busan Lotte Hotel, the respective parents of its Gimpo and Gimhae airport operations) is seeking a refund of airport rent fees paid to Korea Airports Corporation in the pandemic-ravaged months of March to August 2020.

The retailer told The Moodie Davitt Report: “It is important to clarify that our case is fundamentally different from the recent rent adjustment claims filed by The Shilla Duty Free and Shinsegae Duty Free [relating to Incheon International Airport Corporation rents].

“In Lotte Duty Free’s case, operations were entirely suspended due to the government-mandated closure of international terminals, making business activity impossible.

“In contrast, the other companies are seeking rent reductions on [Incheon International Airport] contracts awarded through competitive bidding. Granting such rent relief could raise concerns about fairness among other duty-free operators and commercial tenants at Incheon International Airport who participated under the same bidding conditions.” ✈