Duty-Free Shop Bid Briefing, Fully Booked in Gimhae and Now Gimpo... Will the Success Continue?

Ahead of the Chuseok holiday, the spread of COVID-19 is accelerating mainly in Seoul and the metropolitan area. On the 16th, the domestic terminal of Gimpo Airport in Gangseo-gu, Seoul, was crowded with passengers. Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Yuri Kim] Major conglomerate duty-free shops are showing interest by attending the bid briefing sessions for Gimpo International Airport duty-free shops following Gimhae International Airport. This is because the application of a sales-linked rent system has reduced cost burdens, and the post-COVID-19 situation must also be taken into account.

◆ Duty-Free Shops Preparing for the Post-COVID-19 Era

According to the duty-free industry on the 30th, representatives from four major conglomerate duty-free shops?Lotte, Shilla, Shinsegae, and Hyundai Department Store Duty-Free?attended the bid briefing session held yesterday by Korea Airports Corporation for the duty-free shop (DF1) in the departure hall on the 3rd floor of Gimpo Airport. The DF1, which is the subject of the bid, covers an area of 732.2㎡ and sells cosmetics, perfumes, and other items. The expected annual sales are around 71.4 billion KRW. Lotte Duty-Free, which currently operates this area, is planning to defend its position. Other duty-free shops have also formed related task forces (TF) and are actively preparing for the bid.

The industry's interest in this bid is largely influenced by the changed rental conditions. A rate system has been applied where a certain portion of sales is paid as rent, similar to the DF2 bid in 2018. The minimum operating rate for the DF1 bid is 30%. Since a 'sales-linked rent' system is applied instead of a 'fixed rent' system, the cost burden is lower even if sales decline due to the impact of COVID-19. The lease period of '5 years + 5 years' is another factor attracting industry interest. The lease can be extended up to 10 years, allowing operators to consider future value such as the tourism boom after COVID-19.

Given the nature of the duty-free business, realizing 'economies of scale' is also an indispensable factor. The larger the duty-free shop in terms of number of stores, product categories, and quantities handled, the greater the 'buying power,' enabling procurement under favorable conditions. An industry insider explained, "Although internet duty-free shops have a much larger share of sales, this airport bid is a 10-year business right that cannot be discarded."

For these reasons, all four major conglomerate duty-free shops also showed interest by participating in the bid briefing session for the Gimhae Airport departure hall duty-free shop (DF1) held earlier on the 8th. The bid covers 991.48㎡ selling perfumes, cosmetics, and other items excluding liquor and tobacco. Korea Airports Corporation will close the Gimhae Airport duty-free shop bid on the 8th of next month and the Gimpo Airport duty-free shop bid on the 26th.

◆ "Will Thoroughly Assess Business Feasibility"

However, it is expected that the fierce bidding competition seen in the past will be difficult to witness. Considering aggressive operations by Chinese duty-free shops and others, the duty-free market is unlikely to show the same boom as before, and the timing for the industry to fully recover from the impact of COVID-19 remains unclear, leading to a conservative stance. There is also the burden of additional expansion while downtown duty-free shops currently in operation are struggling. According to the Korea Duty Free Shops Association, domestic duty-free shops recorded an all-time high annual sales of 24.8586 trillion KRW in 2019, but sales sharply dropped to 15.5052 trillion KRW last year when the direct impact of COVID-19 began.

An industry official said, "We attended the briefing session for now, but whether and to what extent we participate in the bid will be decided after thoroughly assessing business feasibility." Another official also said, "There are internal concerns about expanding business sites," adding, "Each company will calculate its break-even point and engage in a cautious competition within that range."

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