SOUTH KOREA. Lotte Duty Free and Shilla Duty Free, the country largest duty free retailers, have withdrawn their respective bids for the Incheon International Airport Terminal 1 concessions due to the COVID-19 crisis – even though they must now give up their deposit guarantees, writes Senior Retail and Commercial Analyst Min Yong Jung.
As reported on 9 March, Shilla and Lotte were named preferred bidders in the T1 tender for the two liquor & tobacco concessions (DF3 and DF4). Hyundai Department Store Duty Free, the preferred bidder for DF7 (fashion & miscellaneous), remains the only large retailer to sign a standard agreement on lease. Hyundai confirmed to The Moodie Davitt Report that no discussions have taken place to relinquish its position – the company’s first opportunity to operate an airport duty free concession.
Today’s withdrawals mark the second time in Incheon’s history that a preferred bidder has decided against proceeding with a contract. Shilla Duty Free previously pulled out of a particularly aggressive bid in June 2000 and had to give up a KWR9.2 billion (US$ 8 million) deposit.
Today’s development reflects a dramatic collapse in passenger numbers and, consequently, duty free sales. Passenger traffic at Incheon has fallen below 7,000 per day since 3 April while duty free sales at the airport plummeted 90% year-on-year in March and will have fallen even further since. Lotte and Shilla both say the risks associated with operating at Incheon now outweigh the financial benefits.
Incheon International Airport Corporation (IIAC) confirmed to The Moodie Davitt Report that both companies have submitted official documents serving notice of their decision to withdraw from the tender. IIAC said that as a result, negotiations will begin with the remaining bidders.
However, that route is unlikely to have much success as the only remaining bidder for DF3 is Lotte and for DF4 Shilla. One leading duty free retailer told The Moodie Davitt Report that it would be very difficult to see either company choosing to proceed with any offer. IIAC said that no company would be punished in terms of being unable to bid on future tenders.
According to Asia Business Daily, the media title that broke the story, the minimum annual guarantees for DF3 and DF4 were KRW63.8 billion (US$52 million) and KRQ 69.7 billion (US$57 million), respectively. Hyundai’s MAG for DF7 is KRW 40.6 billion (US$33 million), according to the same article.
*Note: Pending a final review by Korea Customs Service, Hyundai Department Store Duty Free is set to increase its Korean presence through the opening of a second downtown duty free store and the Incheon T1 concession.
