Incheon Airport Duty-Free Operators Confirmed for All Zones... Major Changes Expected (Comprehensive)

DF3 Silla·DF4 Shinsegae…DF5 Hyundai Department Store
Confirmed Following DF1 Silla·DF2 Shinsegae the Previous Day
Lotte's Elimination a Variable, Duty-Free Industry Foresees Major Changes

On the 27th, the final duty-free operators for the departure halls at Incheon International Airport were selected.

Following the previous day’s expected outcome where Shilla Duty Free and Shinsegae Duty Free secured the DF1 and DF2 zones, which handle the main representative products of the duty-free shops, the DF3 and DF4 zones, covering fashion, accessories, and boutiques, were also awarded in order to Shilla and Shinsegae. Although Shinsegae, which offered a higher bid, was expected to take DF3 and Shilla DF4, the final total score count showed a narrow margin with Shilla receiving a higher score and becoming the operator of DF3. The DF5 zone, which exclusively handles boutiques, went to Hyundai Department Store Duty Free as expected. These companies passed the first selection by Incheon International Airport Corporation last month and the final Customs Service review on the 26th and 27th.

Although the results in the DF3 and DF4 zones defied industry expectations, there were no surprises. For the next 10 years, Shilla Duty Free will operate DF1 and DF3, Shinsegae Duty Free will manage DF2 and DF4, and Hyundai Department Store Duty Free will run DF5. The small and medium-sized duty-free business zones DF8 and DF9 were divided between Gyeongbokgung Duty Free and City Plus, respectively.

According to Incheon International Airport Corporation, among the duty-free zones DF 1 to 5 where large companies can participate, Shilla and Shinsegae Duty Free were selected as multiple candidates for DF1-2, which sell perfumes, cosmetics, liquor, and tobacco, and DF3-4, which handle fashion, accessories, and boutiques. For DF5, which deals only with boutiques, Shilla, Shinsegae, and Hyundai Department Store Duty Free were selected as multiple candidates. The photo shows the duty-free shop located in the boarding terminal of Incheon International Airport on the 20th. Photo by Kang Jin-hyung aymsdream@

The surprise happened in the first round... Lotte eliminated

The surprise occurred during last month’s multiple operator selection (first round review) by Incheon Airport Corporation for each duty-free business zone. Lotte Duty Free, the top seller, did not even advance to the second Customs Service review. Before the bidding, the official participation of the China National Duty Free Group (CDFG) was expected to intensify price competition, but Lotte submitted relatively conservative bids in most zones and failed to qualify as a candidate for Incheon Airport duty-free operators. Notably, despite bidding higher than Hyundai Department Store in DF5, Lotte was excluded from the final candidates. This was due to factors including the evaluation scores of business proposals beyond just price. Ultimately, DF5 went to Hyundai Department Store due to the rule prohibiting overlapping wins among the group (DF3, 4, 5).

Although the second review did not change the overall trend, relatively minor variables caused some confusion among the operators. The industry expected Shinsegae Duty Free, which offered the highest bid in DF3 and DF4, to take DF3, but the final combined score reversed the result by a narrow margin, awarding DF3 to Shilla Duty Free.

The industry is paying close attention to this outcome as it could alter the rankings of domestic duty-free operators. Shilla Duty Free and Shinsegae Duty Free, ranked second and third domestically by sales, could surpass Lotte Duty Free, the current number one. In 2022, Lotte Duty Free’s sales were 5.03 trillion KRW, while Shilla Duty Free’s sales were 4.3332 trillion KRW.

The butterfly effect of 'passenger-linked' rent

The rent calculation method for this operator selection changed from a 'fixed rent' to a 'passenger-linked' system. Rent is now charged based on passenger numbers, which is a more favorable condition for securing profitability compared to the fixed rent system used previously. However, there is analysis that future outcomes need to be monitored carefully since an increase in passenger numbers does not guarantee an increase in duty-free visitors.

The rent burden, which reached up to 170% of the minimum bid price, is also a variable. Based on the 2019 international departure passenger count (approximately 35 million), the combined annual rent for DF1 to DF5 is estimated at about 870 billion KRW, which is 87% of the roughly 1 trillion KRW rent in 2019. Assuming sales recover to 2019 levels, rent would account for about 31% of sales. The key issue is how quickly recovery will occur. Generally, when rent reaches around 40%, it becomes difficult to generate profits.

Nevertheless, Shilla Duty Free and Shinsegae Duty Free valued the symbolic significance as global duty-free operators and the potential for sales expansion. They expect that with the full onset of the endemic phase (periodic outbreaks of infectious diseases) and passenger recovery, sales at Incheon Airport alone will exceed 1 trillion KRW each. Given the duty-free industry’s characteristic of maintaining business through large-scale sales, multi-trillion KRW sales outlets cannot be overlooked. Since its opening in 2001, Incheon Airport duty-free shops have recorded an average annual growth rate of 6%, reaching 2.8 trillion KRW in sales in 2019. As Korea’s gateway and an Asian hub airport, Incheon Airport holds significant symbolic value. The presence of major luxury brands is often influenced by whether they are located in global airports. Louis Vuitton recently announced plans to strengthen its presence mainly in airport duty-free shops. Being located in major airports like Incheon Airport is also advantageous when operators expand into overseas markets.

The newly selected operators will run the Incheon Airport departure hall duty-free shops for 10 years starting in July. The final operators expressed their expectations in unison. Shilla Duty Free stated, "As the only operator simultaneously managing duty-free shops at major Asian hub airports such as Incheon Airport, Singapore Changi Airport, and Hong Kong Chek Lap Kok Airport, we will overcome the COVID-19 crisis together with Incheon Airport and continue to uphold the status of the world’s number one airport in duty-free sales." Shinsegae Duty Free also said, "Incheon Airport will be a stepping stone for tourism revival in the reopening era. We are preparing to operate Incheon Airport in time for the July 1 opening and will contribute to making Incheon Airport a world-class tourist destination."

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