SOUTH KOREA. The Shilla Duty Free and Incheon International Airport Corporation (IIAC) have reached an agreement to cut the retailer’s concession fees for its duty free contract at Incheon International Airport T1 by -27.9%.
The news surprised the Korean travel retail trade. Shilla, together with rival Shinsegae Duty Free and several small & medium enterprise retailers, had been locked in a dispute with IIAC over what the parties viewed as a fair reduction in the wake of the T2 opening in January.
Shilla has now accepted IIAC’s revised rental formula at T1 to reflect the drop in the number of passengers subsequent to the opening of T2 in January.
“We will do our job as well as possible instead of being involved in a never-ending dispute,” Hotel Shilla President of Travel Retail Division Ingyu Han told The Moodie Davitt Report during an interview at Shilla’s headquarters in Seoul today [look out for the full interview, to be published soon]. He said he had agreed to the IIAC proposal just two hours earlier.
“We will stay at T1. This morning I accepted IIAC’s proposal based on an adjusted MAG according to passenger fluctuation.”
As reported by Yonhap News Agency, a Hotel Shilla spokesperson noted that while the proposal was “not quite enough to resolve the difficulties faced by the duty free industry”, the retailer understood “that there is no alternative way of deciding the amount of rent cut”.
The spokesperson added: “We thought it was time for us to wrap up the rent issue and move on to prepare for another leap in line with the changing business climate.”
As reported, Lotte Duty Free yesterday (2 April) partly blamed sky-high concession fees at Incheon International for a -99.25% collapse in 2017 operating profits to just KRW2.5 billion (US$2.38 million). Fees have escalated sharply as the contract at Terminal 1 has progressed.
Lotte failed to renegotiate its terms with IIAC and has quit most of its T1 contracts, which are being rebid.
Shinsegae Duty Free will review IIAC’s agreement with Shilla and respond to the airport operator with its position by early next week, according to the Yonhap News Agency report. The various SMEs are also considering their position.
