SOUTH KOREA. None of the three large retailers (Lotte Duty Free, The Shilla Duty Free and Shinsegae Duty Free) have yet applied for the six-month 20% Minimum Annual Guarantee reduction offered by the South Korean government and Incheon International Airport Corporation (IIAC), writes Senior Retail and Commercial Analyst Min Yong Jung.
The reduction, driven by the COVID-19 outbreak and its drastic impact on air travel and related retail spending, applies for a maximum six months (from March to August inclusive) for medium and large enterprises.
The reluctance of the big three retailers to accept relief (that they had been so desperately seeking) is due to a condition stating that recipients of the MAG cut would forego any discounts next year from any decline in passenger traffic.
Current Incheon concession terms state that the MAG from the second year will be calculated as 50% of the rate of change in passengers added to or deducted from the MAG for the first year (the limit to the annual increase/decrease rate of the MAG shall be ±9%).
Due to the collapse in passenger traffic – a 90% slump in March – current concessionaires at Incheon are expecting a -9% discount to their MAG next year. IIAC’s clause stipulates that concessionaires are required to give up the discounts next year in exchange for receiving relief now (i.e. the 20% MAG cut for six months).
One leading duty free retailer told The Moodie Davitt Report that should large-sized enterprises accept the government’s support measures (and IIAC’s clause), the actual MAG discount over the three-year period would be less than 2% of current total annual MAG commitments and effectively eliminate support for the beleaguered industry.
IIAC stated that the measures are aimed to ensure that companies don’t receive the same benefit twice – meaning that companies which receive MAG discounts this year also receive an additional 9% reduction next year.
Calculations by The Moodie Davitt Report
Scenario 1: Medium and large enterprises accept current relief measures and agree on giving up next year’s discount
Scenario 2: Medium and large enterprises reject current relief measures and receive next year’s discount
