SOUTH KOREA. Incheon International Airport Corporation (IIAC) announced a new RFP for duty free concessions at Terminal 1 on 23 September – just one day after drawing blanks on the same tender, writes The Moodie Davitt Report Senior Retail and Commercial Analyst Min Yong Jung*.
The retendered stores at Incheon International Airport (DF2, DF3, DF4, DF6, DF8, DF9) failed to receive more than the two bids per store required under South Korea’s Public Procurement Law to make the tender valid.
The RFP released yesterday, 23 September, to retender the same concessions shows that IIAC will accept new bids between 5 and 12 October. While the minimum financial bid requirement was lowered by -30% in the last retender, the latest RFP shows no discounted incentive this time around to generate greater interest (see below).
Scholars of game theory will likely find the current tender intriguing. Shilla and Hyundai walked away unscathed in the last round – despite not participating they did not miss out on any concessions. However, both may now be drawn into the game, in this case one of cat and mouse.
Head of Concessions Development Group Bum-ho Kim told The Moodie Davitt Report that if the tender fails again, changes could be made to enhance its competitiveness.
“The number of operators that can participate is limited at present, but we will still go ahead with a third round of tenders for duty free concessions,” he said. “If the latest round fails, IIAC will need to consider making changes. We would want to request Korea Customs Service to approve changes such as consolidating the concessions and allowing existing operators of a category to bid for the same category – and to operate all categories.
“IIAC may also consider foregoing the tender and may contract with individual retailers directly or may again lower the minimum financial bid requirement. Due to the impact from COVID-19 it’s difficult to say if we will get sufficient bids to award concessions. But we expect the operators who bid in the last retender to participate again.”
The total held in concession deposits by the big three retailers to IIAC – including Terminal 1 and 2 – is as much as KRW405 billion (US$346 million), big money in normal circumstances, especially so amid a global pandemic that has devastated traffic
The road to finding retailers for the six duty free concessions has been a rocky one for IIAC. In February, The Shilla Duty Free and Lotte Duty Free were selected as preferred bidders for DF3 (Liquor & Tobacco) and DF4 (Liquor & Tobacco) but both companies withdrew because of the uncertainty created by the escalating COVID-19 crisis. DF2 (Perfume & Cosmetics) and DF6 (Fashion & Accessories) failed to gain more than two valid bids, rendering them invalid.
The next round in the tender closed, as stated, on 22 September with no preferred bidders announced. This time around, Lotte Duty Free bid for DF3 and DF4 while Shinsegae Duty Free was the sole bidder for DF6. Neither The Shilla Duty Free nor Hyundai Duty Free participated – Shilla’s decision not to defend its concession DF2 (Perfume & Cosmetics) surprised observers who expected the Korean number two and world number three to defend its enivable status of operating cosmetics concessions across three of Asia’s largest airports – Incheon International, Changi and Hong Kong International.
Some believe that Shilla’s decision not to participate was a strategic manoeuvre to draw out another failed bid, thus prompting IIAC to lower the cost of entry. With the number of participants at an historic low and uncertainties regarding business prospects at an all-time high, Shilla will have anticipated lacklustre interest by its peers.
The need to submit high deposits for new bids would have been another deterrent. Existing deposits paid to IIAC for Incheon International Airport Terminal 1 by operator are Shilla – KRW130 billion/US$111 million; Lotte – KRW80 billion/US$68 million and Shinsegae – KRW40 billion, US$34 million. The total held in concession deposits by the big three retailers to IIAC – including Terminal 1 and 2 – is as much as KRW405 billion (US$346 million), big money in normal circumstances, especially so amid a global pandemic that has devastated traffic.
Scholars of game theory will likely find the current tender intriguing. Shilla and Hyundai walked away unscathed in the last round – despite not participating they did not miss out on any concessions. However, both may now be drawn into the game, in this case one of cat and mouse.
If IIAC decides to contract directly with a single player, retailer bids would still be required first to allow such negotiations (under the Public Procurement Law 3, companies must make formal offers before a public entity – such as IIAC – can engage in negotiations). Any company not bidding next time around runs the clear risk of going home empty-handed.
One industry expert told The Moodie Davitt Report that the allure of operating a major Incheon concession for ten years, hopefully most of them in a much-improved trading climate, will be too tempting to miss. More offers are therefore expected. The key question is how many.
*Note: Korean national Min Yong Jung, formerly based in London and now in Seoul, is Senior Retail and Commercial Analyst at The Moodie Davitt Report. His appointment in June 2019 was the first of its kind in travel retail media. It marked the creation of the Moodie Davitt Business Intelligence Unit, a new division designed to provide a previously unseen level of research and analysis for the travel retail channel.
Do you have research needs related to the Korean and Asia Pacific travel retail and luxury markets? Min Yong Jung can be contacted at minyong@moodiedavittreport.com
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