SOUTH KOREA. The duty free tender at Gimpo International Airport in Seoul, which closed this week, has failed to attract a single bidder.
The current retailers at Gimpo are Lotte Duty Free (liquor & tobacco) and The Shilla Duty Free (perfumes & cosmetics). Their contracts expire on 12 May.
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Buoyed by burgeoning Chinese tourism, Gimpo International has experienced strong passenger traffic in recent years (outside 2015’s MERS crisis period) but that has not been enough to convince Korean travel retailers to meet the stiff guarantees demanded |
A source close to the matter said that the minimum annual guarantees set by Korea Airports Corporation were “too high”. He noted: “While the retail space was due to be increased by almost +80% so were the fees. Absolutely nonsense. Even with the current concession fees, the retailers are suffering deficits.”
Another senior executive told The Moodie Report: “Due to the minimum rents requested, both would have been heavily unprofitable concessions.”
Another told us: “There is uncertainty in the market due to the rumours that the Korean government might issue more downtown duty free licences in the near future. Nobody can do a feasibility study in this uncertain circumstance.”
A new bid will now be conducted online next week, The Moodie Report understands. If that also fails, Korea Airports Corporation will drop the MAG by -10%, according to the source, which he said would not be sufficient to attract serious interest.
The Moodie Report also understands that Korea Airports Corporation failed to attract any bidders for the recent duty free tender at Gimhae Airport in Busan, South Korea’s second city.
An informed source told The Moodie Report that the problem once more lay with excessive MAG expectations. “This shows very apparent misunderstandings regarding the duty free business, that the airports falsely view the business as profitable for the retailers,” the source said.
As revealed, the tender was called to find a replacement retailer for Shinsegae Duty Free which last December announced an early withdrawal from its contract.
Shinsegae (New World Chosun Hotel) won the main five-year duty free contract for Gimhae in July 2013. However, driven by a highly aggressive financial bid, the concession posted heavy losses, prompting Shinsegae to focus instead on its downtown duty free operation in Busan (recently relocated to the spectacular new Shinsegae Centum City complex) and its Incheon and Seoul downtown (opening in May) operations.
