Incheon Airport Duty-Free Store Bidding Fails Due to High Rent

2 Out of 8 Bidding Targets Fail
Participants Withdraw Due to Rent Burden After Bidding
Most Competition in Lowest Rent Areas
Prolonged Impact of COVID-19... "Rent Reduction Needed"

The arrival hall of Terminal 1 at Incheon International Airport is quiet on the 6th. Photo by Moon Honam munonam@

[Asia Economy Reporter Seungjin Lee] The high rental fee policy of Incheon International Airport Corporation's duty-free shops has come under scrutiny. Following the unprecedented failure of the bidding for the duty-free shop business rights at Incheon Airport Terminal 1, there was even a case where a bidder withdrew after participating due to the burden of rental fees.

According to industry sources on the 7th, SM Duty Free, a small and medium-sized enterprise, declared its withdrawal from the bidding for new operators at Incheon Airport the day before. SM Duty Free cited the deterioration of business performance due to the decrease in inbound and outbound passengers caused by the spread of COVID-19 as the reason in their statement, but the core issue was the rental fees.

On the 27th of last month, the Ministry of Strategy and Finance announced a "Comprehensive Livelihood and Economic Measures to Minimize the Impact of COVID-19 and Achieve Early Recovery." The measures included a 25-30% reduction in rental fees for six months for tenants in 103 public institutions operating rental facilities, including Incheon International Airport Corporation.

However, Incheon Airport Corporation clarified that the rental fee support applies only to small business owners and small and medium-sized enterprise tenants, limiting the beneficiaries to just two companies: Cityplus and Grand Duty Free. SM Duty Free's parent company, Hana Tour, was excluded on the grounds of being a medium-sized enterprise. Ultimately, SM Duty Free, which had recently implemented a 20% wage cut for employees due to the COVID-19 impact, made the difficult decision to withdraw from the bidding.

SM Duty Free expressed regret, saying, "We are very disappointed to withdraw from the bidding for the currently operated business rights," and urged the government and Incheon Airport Corporation to reconsider rental fee adjustments for Terminals 1 and 2 and the arrival duty-free shops.

When the first bidding failure occurred last month for the DF2 (perfume and cosmetics) large enterprise business rights, which was expected to be the most competitive, rental fee issues were also highlighted.

This area generates the highest sales in Terminal 1, but due to the high rental fees, Lotte, Shilla, Shinsegae Duty Free, and Hyundai Department Store Duty Free all refrained from participating in the bidding. The corporation reportedly set the first-year minimum guaranteed rent for the DF2 business rights at 116.1 billion KRW annually for an area of 1,258㎡ (approximately 380 pyeong).

On the other hand, the most intense competition occurred in the DF7 (fashion and accessories) business rights, which have the lowest rental fees, clearly illustrating the rental fee burden in the duty-free industry. The first-year minimum guaranteed rent here is 40.6 billion KRW, and Lotte, Shilla, Shinsegae Duty Free, and Hyundai Department Store Duty Free all participated in the bidding.

The duty-free industry argues that, given the existential crisis caused by COVID-19, the government should extend rental fee reductions to large enterprises as well. In fact, with the sharp decline in airport users, domestic duty-free sales in the third week of last month dropped by 40.4% compared to the same period last year. The duty-free industry has also implemented measures such as reduced operating hours and recommending unpaid leave for employees amid recent poor performance.

Notably, last year, Incheon Airport's duty-free rental income totaled 1.0761 trillion KRW. Of this, large enterprises like Lotte and Shilla accounted for 91.5% (984.6 billion KRW), leading to criticism that the rental fee relief measures for small and medium-sized duty-free shops, which make up less than 10%, are merely for show.

Regarding this, an industry insider said, "There could be another case like in 2018 when Lotte Duty Free returned its business rights due to rental fee burdens," and added, "The withdrawal of duty-free business rights also impacts Incheon Airport Corporation's revenue, so the government should seek new measures such as expanding rental fee relief benefits."

Earlier, on the 17th and 27th of last month, the Korea Duty Free Association sent official letters to Incheon Airport Corporation requesting rental fee reductions. The association proposed lowering the minimum guaranteed rent or linking rent to sales, but Incheon Airport Corporation reportedly responded skeptically. The association plans to monitor the situation until additional measures are announced by Incheon Airport Corporation.

Meanwhile, the current bidding targets include five large enterprise business rights and three small and medium-sized enterprise business rights, with contracts ending in August. Among the five large enterprise business rights?DF2 (cosmetics and perfume), DF3 (liquor, tobacco, packaged foods), DF4 (liquor and tobacco), DF6 (fashion and accessories), and DF7 (fashion and accessories)?DF2 and DF6 failed due to insufficient bidders.

This content was produced with the assistance of AI translation services.