SOUTH KOREA. In a widely anticipated but nonetheless extraordinary development, Shinsegae Duty Free has opted to resign its Incheon International Airport DF2 concesssion (embracing perfumes & cosmetics, liquor and tobacco).
The decision, which mirrors last month’s action by fellow Incheon travel retailer The Shilla Duty Free, was conveyed to Incheon International Airport Corporation (IIAC) today (30 October). That means a likely 27 April termination.
“The company will now focus its resources on strengthening its downtown Myeong-dong store and the DF4 (fashion and accessories) operations at Incheon Airport to enhance overall business sustainability,” Shinsegae Duty Free told The Moodie Davitt Report.
Shinsegae Duty Free operates the DF2 business across 4,709sq m of space in terminals 1 and 2 under a concession that was originally set to run until 2033.
As in Shilla’s case, Shinsegae Duty Free’s decision follows IIAC’s formal rejection on 16 September of Incheon District Court’s mediation order in favour of -25% (Shilla) and -27.5% (Shinsegae) rent reductions, for the pair’s respective DF1 and DF2 concessions.
Both retailers were then faced by a choice of three unenviable options – continue with heavy loss-making businesses; proceed to a full lawsuit against IIAC with limited chances of success; or withdraw from the contracts in question.
Despite facing heavy termination penalties of around KRW200 billion (US$144 million), both have decided contract resignation is the least financially punitive route. {Main story continues below the following subscription offer.}
With The Shilla Duty Free set to depart its DF1 concession on 17 March, IIAC will now have to quickly call a new tender for both concessions.
Both Shinsegae and Shilla can bid, as can (and most certainly will) heavyweight Korean rival Lotte Duty Free.
And talking of heavyweights, will China Duty Free Group, which participated in vain last time, rebid, perhaps sensing a more realistic chance of success this time around?
The answers will come in the weeks ahead. For now the travel retail community can only look on with astonishment as the two biggest retail incumbents prepare to walk away from key contracts at the gateway which has long vied (with Dubai International Airport) for the status of world’s biggest airport duty-free location.
These are unprecedented times for the seemingly never-ending travel retail tumult in what, perversely, is known as the land of the morning calm. ✈
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Note: The Moodie Davitt Report is the only international business media to cover all airport or other travel-related consumer services, revenue-generating and otherwise. Our reporting includes duty free and other retail, food & beverage, property, passenger lounges, art and culture, hotels, car parking, medical facilities, the Internet, advertising and related revenue streams. Please send relevant material, including images, to Martin Moodie at Martin@MoodieDavittReport.com for instant, quality global coverage.
