Hotel Shilla has ultimately returned its Incheon International Airport duty-free concession. A dispute with Incheon International Airport Corp. over rent adjustments failed to reach an agreement. With Shinsegae Duty Free facing a similar conflict, the duty-free industry is considering the possibility of a domino withdrawal by major airport duty-free operators.
According to industry sources on the 19th, Hotel Shilla disclosed the previous day that it would return the Incheon Airport duty-free DF1 zone (cosmetics and perfume) concession. As a result, Hotel Shilla must pay Incheon International Airport Corp. a penalty equivalent to the lease deposit of 190 billion won. Under the contract, it will operate until Mar. 17 next year and then withdraw.
After signing a contract in 2023 with Incheon International Airport Corp. for the duty-free operating concession, Hotel Shilla requested a rent adjustment as duty-free sales plunged due to changes in consumption patterns and losses accumulated. The deficit from Hotel Shilla's duty-free business was about 6 billion to 8 billion won per month.
A Hotel Shilla official said, "The losses are too great to continue operating at Incheon Airport," and added, "The company has unavoidably decided to return the Incheon Airport duty-free DF1 zone concession, judging that it needs to improve its financial structure and enhance the value of the corporations and shareholders."
In this situation, attention is turning to Shinsegae Duty Free's (Shinsegae DF) decision. This company, like The Shilla Duty Free, also asked Incheon International Airport Corp. to lower the rent. Shinsegae Duty Free is at odds with Incheon International Airport Corp. over the rent for the Incheon Airport DF2 zone (liquor and tobacco).
The Shilla Duty Free and Shinsegae Duty Free filed adjustment applications with the Incheon District Court in 4th and May, respectively, seeking a 40% rent reduction from Incheon International Airport Corp. The Incheon District Court later issued a nonbinding recommendation to cut Incheon Airport duty-free rents by 25% to 27%. However, Incheon International Airport Corp. rejected it, and the sides failed to narrow their differences. A Shinsegae Duty Free official said, "We have not yet decided whether to withdraw," adding, "We are closely reviewing the situation."
The duty-free industry believes Hotel Shilla's withdrawal will reshape the duty-free market landscape. If Shinsegae Duty Free also returns its concession, a large-scale rebidding will be inevitable.
An industry official said, "While a duty-free operator that terminates a contract is obligated to operate for six months, Incheon International Airport Corp. must select a successor operator," adding, "Lotte Duty Free, which lost in the last bidding, is expected to try again when the bid notice is posted." Earlier in 2023, Lotte Duty Free participated in the bidding but was eliminated after offering a lower amount than The Shilla Duty Free and Shinsegae Duty Free.
There is also speculation that a Chinese duty-free operator could enter Incheon Airport. An industry official said, "If a Chinese duty-free shop moves into the space vacated by a major domestic duty-free operator and takes over the 'home turf,' the domestic duty-free industry will inevitably face greater difficulties," and added, "If there is a Chinese duty-free shop at Incheon Airport, Chinese travelers are highly likely to spend only at that shop." In the 2023 bidding, China Duty Free Group (CDFG), which is state-owned, reportedly submitted a higher bid than Lotte Duty Free.
Lee Jong-woo, a professor of business administration at Ajou University, said, "From the standpoint of the competitiveness of the domestic duty-free industry, it is important for domestic duty-free operators to hold their ground inside Incheon Airport. They should continue to pursue dialogue and compromise rather than legal confrontation."