"Could it really close?"..Incheon Airport Duty-Free Shop Faces 'Rent Crisis'

[Financial News] As the downturn in the duty-free industry continues, there are concerns that in the worst-case scenario, Shinsegae and Shilla duty-free shops at Incheon International Airport may have to cease operations. Although the number of airport users has returned to pre-pandemic levels, the average spending per customer at duty-free shops has not recovered, putting the industry at a crossroads over whether Incheon Airport's massive rent reductions will be granted.
Shinsegae and Shilla duty-free shops have applied for civil mediation in court to determine an objective and reasonable rent, but it is known that the Incheon International Airport Corporation, the contracting party, will not attend the second mediation date scheduled for August 14.
According to the legal and distribution industries on the 31st, the Incheon District Court is objectively assessing the appropriateness of the rent through a civil mediation application filed by Hotel Shilla and Shinsegae DF, the duty-free shop operators at Incheon International Airport. On the 14th, the court issued a 'request for appraisal decision' to professional institutions such as accounting firms, and the appraisal process is currently underway.
The industry believes that the court's determination of an objective and reasonable rent level at this time is the key to the mediation process. The court's active mediation is due to cases where foreign airports have reduced rents for airport operators.
In the case of Singapore's Changi Airport, which calculates rent in the form of a minimum guarantee per passenger like Korea, rent was temporarily reduced by up to 100% during the COVID-19 period. Even after COVID-19, rent was adjusted to 21-32% of sales through direct negotiations with individual stores. Hong Kong Airport also calculates rent in a minimum guarantee manner per passenger similar to Incheon Airport. After the decline in duty-free sales post-COVID-19, when operators demanded rent reductions, the airport authorities announced earlier this year that they would proactively consider the opinions of each operator. Shanghai Pudong Airport, which calculates rent considering sales and operating rates, significantly reduced the minimum guarantee amount to 23% after December 2023 to alleviate the operational burden on operators.
Unlike East Asian international airports that have taken such measures, Incheon International Airport Corporation is reportedly maintaining its position not to attend the second mediation date scheduled for August 14. It intends not to participate in the mediation process itself.
Shinsegae and Shilla duty-free shops won the right to operate duty-free shops at Incheon Airport's departure hall for 10 years starting from July 2023, with 8 years remaining in the operation period. The passenger fee per person proposed by both companies during the duty-free license bid was 8,987 KRW for Shilla and 9,020 KRW for Shinsegae. Considering that the monthly number of Incheon Airport users is around 3 million, the monthly rent per company is estimated to be approximately 27 billion KRW. Shilla and Shinsegae duty-free shops recorded operating losses of 69.7 billion KRW and 35.9 billion KRW, respectively, last year.
Previously, Lotte Duty-Free also decided to withdraw in 2018 when it became difficult to handle rent due to the decline in Chinese visitors following the Chinese government's tourism restrictions on Korea due to the deployment of THAAD (Terminal High Altitude Area Defense). At that time, Lotte Duty-Free and Incheon Airport Corporation held several rent negotiations but could not reach an agreement.
A duty-free industry official said, "If the current situation continues, the deficit may grow larger than the termination penalty, leading to a withdrawal from the airport. From the industry's perspective, standing at the crossroads of life and death due to continued losses for years, it is best to hope that Incheon Airport Corporation attends the scheduled mediation date to find an amicable agreement."
wonder@fnnews.com Jeong Sang-hee Reporter