Next Year's Business Uncertain... Duty-Free Industry Can't Smile Despite Endemic

Ahead of Incheon International Airport Duty-Free Store Bidding
Rental Fee Imposition Method Still Undecided

[Asia Economy Reporter Jeon Jinyoung] The duty-free industry is facing a situation where it cannot fully celebrate despite recording the highest sales ever this September. The bidding for duty-free shops at Incheon International Airport is approaching, but it has become difficult to take action easily because Incheon International Airport Corporation has yet to decide on the rent charging method. The industry's concerns are growing as they prepare strategies for next year in line with the endemic (periodic outbreak of infectious diseases).

According to the industry on the 3rd, the bidding for Incheon International Airport duty-free shops is expected to take place as early as this month or by December at the latest. Airport duty-free business is called a ‘flagship business’ in the duty-free industry and is highly important. This is because operational experience plays a crucial role when attempting overseas expansion. However, Incheon International Airport Corporation is still postponing important decisions related to the business.

The biggest issue currently is that the rent calculation method has not been decided. Considering the downturn in sales due to COVID-19, Incheon International Airport Corporation changed the rent system until this year from fixed rent to a method based on sales commission rates. Instead of receiving a large fixed rent every month, they allowed payment according to sales levels.

According to the plan, tenant companies will have to pay fixed rent starting two months from now. In particular, concerns have grown among tenants in Terminal 1, including Shinsegae and Hyundai Department Store duty-free shops, as well as small and medium-sized enterprises. Lotte and Shilla Duty Free, located in Terminal 2, are relatively free from rent charging methods as their contracts expire this year, but most Terminal 1 tenants still have contracts until next year and must pay rent without exception.

However, sales that have not yet recovered are holding them back. An industry insider said, “Sales should recover to about 70-80% of pre-COVID-19 levels, but travel restrictions are still in place, so recovery is only about 40%. In this situation, paying a fixed rent of about 25 billion KRW per month will inevitably make next year’s business operations difficult.” This amount is roughly equivalent to quarterly operating profit. The industry insists that rent reduction measures should be maintained this time as they were postponed in June.

Incheon International Airport Corporation has not issued a statement. A representative said, “We cannot confirm anything about the rent charging method or bidding schedule at this time. However, since the previous rent decision was made about a week before the new year, we think it might be announced around a similar time.”

The industry’s concerns about creating new plans in preparation for the endemic are growing. The industry is already maintaining scale by reducing new business investments such as withdrawing from overseas duty-free shops. They are strengthening downtown duty-free shops to capture increasing foreign demand and focusing on the online sector targeting domestic customers, but recovery is limited as core customers, Chinese tourists, have not returned.

Another industry insider emphasized, “Until the major Chinese market reopens, the only way to sustain business is to reduce expenses by cutting new business investments. Quick decisions from Incheon International Airport Corporation, such as extending rent reductions, and active efforts by the government to attract Chinese tourists are ultimately the key solutions.”

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