The conflict over the adjustment of rental fees at Incheon International Airport is escalating between Incheon International Airport Corporation and Hotel Shilla and Shinsegae Duty Free. Incheon International Airport Corporation maintains its refusal to attend the second adjustment date scheduled for the 14th, rejecting the negotiations altogether. Hotel Shilla and Shinsegae Duty Free have stated that they would consider withdrawing from the Incheon Airport duty-free shops if negotiations fail.
According to related industries on the 6th, Hotel Shilla, the operator of Shin Ramyun duty-free shop, and Shinsegae Duty Free, operated by Shinsegae DF, submitted adjustment requests to the Incheon District Court in April and May, respectively, asking for a 40% reduction in rental fees for cosmetics, perfumes, alcoholic beverages, and tobacco stores (DF1, DF2 areas) in the Incheon Airport's Terminal 1 and 2 duty-free shops. Following the first adjustment conducted on the 30th of last month, the second adjustment will take place on the 14th.
During the first adjustment that was held earlier, both sides failed to narrow their differences. Therefore, the court requested a proper rental fee assessment from Samil and other firms. This assessment is a procedure where the court asks external institutions with expertise to verify facts in order to make a specific judgment. Based on this result, the court's policy is to prepare for renegotiation.
Incheon International Airport Corporation insists on not attending the second adjustment date scheduled for the 14th, regardless of the assessment results. This decision stems from the belief that changing a contract confirmed through international bidding could pose a breach of trust. Previously, when Lotte Duty Free, which entered Incheon Airport in 2017, requested a rental fee reduction due to the effects of THAAD, the corporation also could not reach a consensus. Ultimately, Lotte Duty Free returned part of its business rights and withdrew the following year.
In 2023, Hotel Shilla and Shinsegae Duty Free obtained the duty-free shop rights at Incheon International Airport with a 10-year contract. At that time, Incheon Airport changed the duty-free shop rental fees from a fixed rate to a system linked to the number of airport users, and both companies submitted bids more than 60% higher than the minimum bid price.
However, the lack of recovery in duty-free shop sales following the end of COVID-19 has become a problem. The size of the domestic duty-free market, which reached 25 trillion won in 2019, decreased to 15.5 trillion won in the following year, 2021, when COVID-19 occurred, and remained around 14.2 trillion won last year. The decline in Chinese group tourists, reduced demand for 'Daigou' (professional shoppers), and changes toward individual consumption have delayed the recovery of duty-free spending.
Shin Ramyun duty-free shop and Shinsegae Duty Free reported operating losses of 69.7 billion won and 35.9 billion won, respectively, last year. Ultimately, Shinsegae Duty Free implemented its first voluntary retirement program since its establishment in November last year, and in January this year, closed its city duty-free shop in Busan. Shin Ramyun duty-free shop also carried out voluntary retirements in April.
Related companies are reportedly considering withdrawing from the airport duty-free shops if there is no progress in this negotiation. One duty-free shop official noted, "Although the contract period for the airport duty-free shops is still 8 years, the current situation is uncertain for revenue recovery," and added, "Internally, I understand that they are reviewing whether to continue to tolerate deficits or to exit with penalties."
The airport corporation holds the position that accepting the adjustment proposal is difficult due to unmet requirements for reducing fees and issues of equity with other operators. On the other hand, the duty-free shops argue that flexible adjustments are necessary due to changes in the business environment. In fact, Airports of Thailand (AOT) is reviewing rental renegotiation at the request of King Power Duty Free (KPD), and Singapore Changi Airport and Hong Kong International Airport have also adjusted rental fees linked to sales or lowered conditions during contract renewals.
There are concerns that if the negotiations between the two sides break down, it could lead to foreign duty-free shops from countries like China entering the domestic market. This is because, in the 2023 Incheon Airport duty-free shop bidding, the world's number one revenue-generating Chinese state-owned duty-free group (CDFG) participated but did not win.
As the government has allowed visa-free entry for Chinese group tourists for nine months starting at the end of September, there are predictions that Chinese duty-free operators' interest in Korea will increase.
One duty-free shop official stated, "While the scale has decreased compared to before, some duty-free shops still rely on Chinese sales for 40% of their total revenue," and added, "If these customers move to their home country's duty-free shops, the impact on domestic duty-free shops will be even greater. For the healthy growth of the industry, it is necessary to establish a government-level negotiation plan."