Korean Duty-Free Shops Compete with China in 4 Zones at Incheon Airport... The Key Factors (Comprehensive)

Final Bid Participation for Incheon Airport Duty-Free Business Rights
Korean Big 4 Compete with China's CDFG in DF1~4
Focus on Key DF1·2 Winners and Potential Entry into China

On the 22nd, when the number of daily users at Incheon Airport exceeded 120,000 for the first time since the COVID-19 pandemic, the duty-free area of Terminal 1 at Incheon Airport was crowded with travelers.
Yeongjongdo - Photo by Kang Jinhyung aymsdream@

Lotte, Shilla, Shinsegae, Hyundai Department Store Duty Free?the 'Big 4' domestic duty-free shops?along with China's state-owned duty-free group China National Duty Free Group (CDFG) have finally participated in the bidding for the Incheon International Airport duty-free business rights. Domestic duty-free shops will compete with China CDFG in a total of four zones.

Competition between Korean and Chinese operators in DF1~4... "Who will take zones 1 and 2?"

According to the duty-free industry on the 28th, the four domestic duty-free shops and China CDFG completed the submission of business proposals for the Incheon Airport Terminal 1 (T1) and Terminal 2 (T2) duty-free business rights by the 4 p.m. deadline. The duty-free shops that submitted participation applications the previous day finalized their participation in each zone by submitting business proposals on this day, and it is known that most operators submitted proposals as per their applications.

The four domestic duty-free shops submitted applications for all five general business rights zones consisting of perfumes & cosmetics and liquor & tobacco (DF1 & 2), fashion, accessories & boutiques (DF3 & 4), and boutiques (DF5), while China CDFG submitted applications for DF1 to DF4, excluding DF5. However, Lotte Duty Free and Hyundai Department Store Duty Free strategically bid on only 2 to 3 zones in the final stage. DF1 & 2 belong to Group 1, and DF3 to DF5 belong to Group 2; multiple bids across the five zones are allowed, but winning multiple zones within the same group is not permitted.

The zones attracting the most attention are DF1 and DF2, which are encountered immediately after departure screening and serve as the 'face' of Incheon Airport duty-free shops. Initially, it was speculated that China CDFG would strategically bid on the relatively less competitive DF5 boutique zone to mark its entry into the domestic market, but in reality, it showed interest in highly competitive zones including DF1 and DF2 among domestic duty-free shops. Considering China CDFG's aggressive bidding, domestic duty-free shops also strategically bid on DF1 and DF2, and industry insiders expect that they offered relatively high prices.

The duty-free business rights evaluation process involves the Incheon International Airport Corporation selecting multiple operators in the first round by reflecting 60% of the business plan score and 40% of the price proposal score (rent). If the price is competitive, the business plan becomes the deciding factor. In the second round, the Incheon International Airport Corporation scores 40% for rent and 10% for the business plan, and the Korea Customs Service, which issues the licenses, adds 50% of the license evaluation score to select the highest scoring operator. The Incheon International Airport Corporation will evaluate the proposals in March and notify the Customs Service. After the Customs Service's review, the new operators are expected to be selected around April.

If China enters even one zone, the domestic duty-free ecosystem faces a crisis

With China CDFG participating in the bidding to decide the 10-year duty-free operator at Incheon Airport, concerns about the domestic duty-free industry ecosystem have intensified. The industry explains that even if not in the symbolic DF1 and DF2 zones, if China CDFG enters any zone including DF3 and DF4, which handle fashion, accessories, and boutiques, leveraging its strong capital, the domestic duty-free industry faces the risk of gradually losing market share.

There are concerns that China CDFG, a Chinese state-owned enterprise, will not only attract Chinese customers?who are major clients of domestic airport duty-free shops?and conduct business with duty-free goods at domestic airports but also expand into downtown stores, growing into a major force that will dominate the domestic duty-free market. A duty-free industry official pointed out, "Considering that the duty-free license system was introduced to attract foreign tourists for foreign currency earnings and tourism promotion, the entry of China CDFG into Incheon Airport, which is expected to increase foreign currency outflow, contradicts the original purpose of introducing duty-free shops." Based on domestic business experience, strengthening its relatively weak brand portfolio and improving price competitiveness, China CDFG is expected to enhance its competitiveness not only in Korea but also on the international stage, resulting in reduced standing for domestic duty-free shops both domestically and abroad.

The industry shares a common concern about the overall business environment, citing the issue of domestic duty-free shops' dependence on Chinese 'daigou' (personal shoppers) that was highlighted again due to major changes in the global duty-free business caused by COVID-19, criticism of this sales method, luxury brands withdrawing from Korean downtown stores, and the unprepared entry of China's top operator amid unresolved structural problems.

Meanwhile, this bidding includes not only five general business rights but also two small and medium-sized business rights. It is known that small and medium-sized duty-free operators such as Gyeongbokgung Duty Free and City Plus participated in the bidding. Swiss company Dufry, which had previously shown interest in the bidding, reportedly did not participate in the final stage.

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