SOUTH KOREA. Incheon International Airport Corporation (IIAC) has confirmed plans to issue a major tender covering departures duty free in T1 in November, with ten-year contracts on offer for the winners.
Speaking at Monday’s TFWA Asia Pacific Conference, IIAC Director of Concessions Planning Team Dong-Ik Shin said the tender would include eight concessions, spanning 8,749sq m and 48 outlets.
Significantly, the contract period has been increased from five years to ten, running from 1 September 2020 to 31 August 2030. Another change, he said, would be that the Minimum Annual Guarantee (MAG) would be linked to passenger growth rates, from a fixed rental previously.
Shin also said that IIAC encouraged overseas participants in the departures tender, despite concerns that South Korea’s controversial dual-assessment system, which sees Korea Customs Service (KCS) evaluate the bids after IIAC’s initial ranking, would make it very difficult for a foreign retailer to win.
Asked by The Moodie Davitt Report in the Q&A if the recent change in Korean duty free licensing arrangements – effectively giving major retailers a five-year semi-automatic extension of their initial five-year licences – might mean the T1 contracts could also be extended, Shin said it was unlikely, and that the tender would almost certainly proceed.
Reflecting on the business year to date, he said that duty free sales in Q1 rose by 7%, a solid climb on last year’s already strong performance, when sales rose 14.8% to an all-time high of US$2.4 billion. The 2018 performance, he noted, was driven by the opening of Terminal 2 in January 2018 and a 9.9% rise in international passenger traffic to 34 million.
The sales potential of international passenger growth is underlined by Incheon’s upcoming opening of the country’s first arrivals duty free shops, run by SM Duty Free and Entas Duty Free.
Analysing sales last year, Shin said that 51% of duty free sales are contributed by foreigners, with Chinese generating the highest spend per passenger at US$188. Cosmetics & perfumes was the top product category in 2018 at US$948 million, with a 40% share of the mix, followed by fashion at 17%.
Looking to the future, Shin envisioned a virtuous cycle where growth in commercial revenues would lead to lower airport fee, which in turn should encourage airlines to bring in more passengers to drive retail. IIAC’s vision, he said, is to be the world’s best shopping and dining location for air travellers. By 2025, it aims to achieve US$3 billion in retail sales and US$100 spend per passenger, while maintaining its high customer satisfaction ratings through ASQ and Skytrax.
Note: The Moodie Davitt Report ran an update on the tender in March, with more details in our May Print & Online Magazine].
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