SOUTH KOREA. Incheon International Airport Corporation (IIAC) is not considering granting rent relief to Korean travel retailers amid the escalating THAAD crisis, according to a company spokesperson.
CEOs from Lotte Duty Free, The Shilla Duty Free and Shinsegae Duty Free met Incheon International Airport senior management last week to seek the relief from their heavy loss-making contracts.
But the IIAC spokesperson told The Moodie Davitt Report: “IIAC doesn’t consider any rent relief at this moment unfortunately. It is a very complicated and serious issue.”
Lotte Duty Free has threatened to close its operations at Incheon International Airport unless it is granted rent relief. The company posted an operating loss of KW29.7 billion (US$26.1 million) in the second quarter ended 30 June – its first quarterly loss since the SARS crisis of 2003.
“We are considering the pull-out option seriously,” said a Lotte Duty Free spokesperson. “It will not be feasible to retain our operation in the current situation, mainly due to the conflict regarding THAAD.”
The spokesman said that even before the THAAD crisis, Incheon rents were very high. “We used to be able to afford the rent due to the profits of our downtown stores,” he commented. “However, the number of Chinese visitors dropped drastically as the Chinese government banned group tours to Korea, and the number of downtown duty free operators increased because the Korean government has added several downtown licences over recent years.
“Under these unpredicted and uncontrollable circumstances, we decided that we will not be able to continue our [Incheon] operation as before.
“Of course, it will be best if Incheon International Airport Corporation and airport duty free operators, including Lotte Duty Free, come up with a reasonable conclusion through negotiation. But if that is not possible, we believe that there won’t be any other option left.”
The Shilla Duty Free won’t be mirroring its rival’s position. “Shilla’s position is quite simple,” a spokesman told The Moodie Davitt Report. “Shilla is not considering withdrawal from Incheon International Airport.”
Chinese tourism in South Korea has collapsed in recent months as a direct result of South Korea’s decision to deploy the US anti-missile system THAAD earlier this year, which prompted a furious backlash from China.
On 15 March China imposed a ban on group tours to South Korea, leading to a -40% year-on-year fall in Chinese arrivals in March, a drastic -66.6% decline in April, a -64.1% slump in May, a -66.4% decrease in June and a -69.3% decrease in July, according to Korea Tourism Organization statistics.
Chinese arrivals in July represented just 27.9% of all visitor arrivals. This compares to a 53.9% share in July 2016, a percentage that grows much higher (65-70%) in terms of share of duty free purchasing.
At T1, Lotte Duty Free won a five-year concession in 2015. It covers three beauty stores, five liquor & tobacco shops, four luxury boutiques in the main Passenger Terminal Building as well as 23 multi-category stores in the remote concourse. Shilla won a four-store beauty concession and a five-shop liquor & tobacco contract in the same tender. Shilla also won the package for 11 general merchandise stores, with Shinsegae Duty Free taking the other general merchandise contract for 12 stores.
In April 2017, Lotte Duty Free was also awarded the liquor, tobacco and packaged foods concession (DF2) at Incheon International Airport’s new Terminal 2, due to open later this year. Shilla secured the perfumes & cosmetics contract and Shinsegae the contentious fashion & accessories concession after several failed bids.
