SOUTH KOREA. The Shilla Duty Free and Shinsegae Duty Free are in urgent talks with Incheon International Airport Corporation to try to reach an acceptable rental formula at Terminal 1, subsequent to the recent T2 opening.
Terminal 2, opened on 18 January, serves four airlines – the country’s flagship carrier Korean Air, KLM, Air France, and Delta Airlines. Incheon’s other 86 airlines stay at T1.
Incheon International Airport Corporation (IIAC) recognised the impact of that traffic dilution on T1 retailers, reducing their rent by a standard 27.9% –commensurate with the anticipated passenger reduction. That’s not enough, say Shilla and Shinsegae, due to the loss of high-spending passengers, average transaction value by location within the terminal, and the retailers’ previous struggle for profitability at T1.
Could the world’s number one duty free airport location last year (with sales of US$2.1 billion) suddenly find itself largely stripped of the three main contributors to that success? – The Moodie Davitt Report
As revealed by The Moodie Davitt Report, Shilla and Shinsegae’s rival Lotte Duty Free has already served notice to quit several of its Incheon T1 duty free concessions (though maintaining its core liquor & tobacco business).
The company cited the “burden of rent increases” following the sharp downturn in Chinese tourists in 2017 amid the THAAD dispute with China. The retailer has quit licences DF1 (P&C), DF5 (leathergoods & fashion) and DF8 (all categories). These cover spaces of 1,324sq m, 2,066sq m and 4,953sq m respectively. The concessions, which it won in early 2015, were due to run from September 2015 to August 2020.
“Shilla is looking forward to finding a better way to overcome the current situation and to enhance our cooperation with IIAC” – The Shilla Duty Free
Whether Shilla and/or Shinsegae follows suit hangs on the outcome of the negotiations.
A spokesman for The Shilla Duty Free told The Moodie Davitt Report: “Duty free operators at the airport found the common rate (-27.9%) not optimised and not reflective of the rearrangement of airline carriers at T1 following the opening of T2. Spending per person at the airport tends to vary according to which airline carrier they fly with.
“Hence, duty free operators, including Shilla, are trying to sort out a preferable option with IIAC and conversations are ongoing.
“Both the duty free operators and IIAC are making efforts to reduce the gap between the parties. We are trying to ensure that the nation’s biggest gateway remains front of class in terms of passenger satisfaction and so that we avoid a chaotic situation,
“Shilla is looking forward to finding a better way to overcome the current situation and to enhance our cooperation with IIAC.”
The Moodie Davitt Report has approached IIAC (where C.K. Kim is currently heading up the commercial department due to his predecessor Bum-Ho Kim’s recent reassignment to another IIAC department) and Shinsegae Duty Free for comment and will bring you any reaction as soon as we have it.
A well-placed industry observer told The Moodie Davitt Report: “The percentage reduction did not take into account the retail impact such as spend per passenger and passenger profile. As of today, Incheon International Airport Corporation has no other intention than to apply the standard deduction.”
Whether that view changes will determine the fate of some of the world’s highest-profile airport retail locations. Could the world’s number one duty free airport location last year (with sales of US$2.1 billion) suddenly find itself largely stripped of the three main contributors to that success?
