Incheon International Airport Corporation’s duty free tenders attracted 11 bidders this week, but only one non-Korean company as the IIAC prepares to extend the licenses of existing concessionaires as the new selection process begins.

 

The existing contracts of Lotte Duty Free, Shilla Duty Free and Korea Tourism Organisation all expire on February 28, 2015 and will be split up into 12 concession packages for a total business that was worth some $1.8bn last year.

 

According to a senior IIAC source there are five companies who have bid for the eight major tender packages (open to all companies) which cover perfume, cosmetics, liquor, tobacco, fashion goods and general merchandise.

 

They are: Lotte Duty Free, Shilla Duty Free, Korea Tourism Organisation, Shinsegae and King Power Duty Free [Thailand] which is the only company among the five that does not operate a duty free shop in South Korea. [It is also the only bidder that has a very successful and extensive airport and downtown business with Chinese customers outside of Korea at its main home base in Bangkok-Ed].

 

In addition to these bidders, the IIAC confirmed that six Korean companies submitted bids for the four tender packages aimed solely at SME companies that also cover all duty free categories. They are: Entas, Dongwha Duty Free, Hana Tour (SME’s), Daegu City Grand Hotel, Chazone and City Plus.

 

 

 

 

MIXED LEVELS OF EXPERIENCE

Three of these SME bidders – Dongwha, Entas and Daegu City Grand Hotel – already operate duty free shops in South Korea, while the rest are potential newcomers to South Korea’s duty free industry.

 

The IIAC source told TRBusiness that it is not revealing individual concession bid details at this stage, in compliance with the airport’s in-house tender procedures: “All 12 packages received bids,” an informed IIAC source said. “We cannot open details about the bids yet. It is under evaluation. The tender process is ongoing.” [TRBusiness understands that all 11 bidders are now in the process of making individual presentations to IIAC].

 

“We are in the middle of bid evaluation. Information about who participated is not open. Information will be available after about two weeks,” the IIAC source said.

 

IIAC aims to award the duty free licenses before February 28, which is the date the seven current Incheon Airport duty free concessions expire. However, a transition period will obviously need to occur between these license awards and the subsequent shop openings, as new operators get full approval from IIAC for their shop designs and floor layouts.

 

“There will be a reasonable period for shop plan preparation; the effective date is not confirmed,” the source said. “We must confirm this with Korea Customs Service.”

 

 

 

 

NO BID DETAILS RELEASED AT THIS TIME

Meanwhile, all details of the individual bids/offers lodged with IIAC remain a matter of speculation at this time. Lotte Duty Free and Shilla Duty Free, the two largest current operators at Incheon Airport, are likely to have bid for all eight open tender packages to maintain their large market share at the airport, say duty free retail sources in Seoul.

 

Other companies may have bid for selected open tender licenses only. The perfume and cosmetics licenses are likely to be the most keenly contested, since P&C is the largest duty free category at Incheon Airport in revenue terms.

 

Also eagerly awaited by duty free suppliers are the full details of the new shops that bidders hope to install if they are successful at Incheon Airport. Which brands are prepared to work with what retailers will be crucial to the success of some operations – particularly those that are new.

 

Of course, IIAC also has to strike a balance as it shares out the retail concession pie more broadly between more retailers. It still remains totally committed to maintaining its high reputation as a top award-winning airport and shopping environment, but it must also balance this with some newcomers who have little – or no experience at all – in the business.

 

“It’s a bit early to talk [changes in duty free shopping facilities when the new operators take over] but we want to be the world’s best airport shopping destination,” the source said. “We want elegant and convenient commercial space with look and feel; the most up-to-date design will be in place.”

 

 

 

 

T1 RENTS TO BE ADJUSTED AS T2 OPENS

Meanwhile, Incheon Airport’s plans to open Terminal 2 in time for the 2018 Pyeongchang Winter Olympic Games will have a major impact on passenger numbers and traffic in Terminal 1 and the concourse in future, as we have reported before. Planning is still underway for T2, including selecting airlines to use the new terminal.

 

However, Incheon management is keenly aware that any movement of passengers or airlines will need to be addressed in future contracts. The source said: “We will deduct the [T1 duty free shop] rent according to the change in passenger numbers.”

 

Downtown duty free shopping in South Korea is also about to enter a new era with the planned opening of new city centre stores in Seoul and Jeju in 2016.  As revealed exclusively by TRBusiness yesterday, the Korea Customs Service (KCS) issued tenders on February 2, 2015, inviting bids for four downtown duty free shops, three of which will be opened in the capital, Seoul and the other on the southern resort island of Jeju.

 

Click here for more details: http://www.trbusiness.com/regional-news/asia-pacific/korean-customs-invites-four-new-downtown-shop-bids/