SOUTH KOREA. Lotte Duty Free announced today that it will exit three of its four loss-making concessions at Incheon International Airport Terminal 1 on 7 July.
The move follows Incheon International Airport Corporation’s (IIAC) acceptance of the retailer’s contract resignation and Lotte’s payment of an undisclosed penalty charge. The exit date is 120 days from IIAC’s approval of the resignation.
As reported, Lotte Duty resigned the DF1 (P&C), DF5 (leathergoods & fashion) and DF8 (all categories) concessions on 13 February. The contracts, which Lotte won in early 2015, were due to run from September 2015 to August 2020. Lotte Duty Free said that its T1 stores have recorded losses of KW200 billion (US$184 million) since 2016. The contracts would run up a deficit of KW1.4 trillion (US$1.3 billion), the retailer claimed, if the stores continued to operate for the full term in 2020.
Lotte Duty Free will continue to operate the main T1 alcohol and tobacco business concession (DF3).
As revealed by The Moodie Davitt Report, IIAC will retender the three contracts, probably later this month.
Normally, one would expect Lotte’s rivals The Shilla Duty Free and/or Shinsegae Duty Free, to seize on the opportunity to snap up more Incheon business. However, both companies are also locked in talks with IIAC to try to further reduce their own T1 concession fees in the wake of the dilutive impact of the T2 opening on 18 January.
BACKGROUND TO LOTTE DUTY FREE’S EARLY EXIT
Lotte Duty Free said it had based its 2015 bid for the Incheon T1 concessions on a sharp rise in Chinese tourism, which at the time was surging at a rate of close to +50% per year.
“However,” it added in a statement on 13 February, “since the Chinese government’s sanctions on group tour visits to South Korea due to the deployment of the THAAD anti-missile system last March, Lotte Duty Free has experienced severe economic hardships. The number of Chinese tourists has dropped by half.
“In addition, the duty free industry in South Korea became more competitive as the South Korean government issued four additional downtown licences and three of those operators will open their stores by the end of this year.” A rise in licence fees related to its downtown business, imposed last February, has also resulted in higher costs, Lotte noted.
As reported, last November Lotte Duty Free filed an unfair trade practice complaint with the Fair Trade Commission over its duty free concessions at Incheon International. The company had been seeking rent relief on its contracts, but its overtures were rejected by IIAC.
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