Incheon International Airport Corporation (IIAC) is expected to announce the winner of its SME (Small and Medium Enterprise) duty free perfume and cosmetics concession DF11 by early July.

 

 

This will effectively bring the entire retail tender process for Incheon Airport’s 12 new five-year concessions to a close, after bidding for the first round of tenders closed on January 31 this year.

 

 

IIAC currently is evaluating submissions for concession DF11 after bidding was closed in May, although in line with state-run IIAC’s government-endorsed tender procedures, details of bidders – including the number of bids and identities – are not being released prior to the license award announcement.

 

 

“We cannot tell details about the DF11 tender now as it’s not decided,” an IIAC source told TRBusiness. “We had the third tender for DF11 in May. It’s now in progress. Maybe we will announce the result next week.

 

 

“The DF11 license is for one perfume and cosmetics shop. Shilla Duty Free currently is operating the shop which is in the main terminal central departure area.”

 

 

 

 

 THE THREE OTHER LICENSES ATTRACTED LESS INTEREST…

DF11 is one of four new SME duty free concessions that IIAC has created to comply with government policy to support the entry of SME companies into a duty free market, which the state sees as dominated by operators backed by some of South Korea’s leading conglomerates.

 

 

Three SME companies – Entas Duty Free, City Plus and SME Duty Free – already have won three of the four SME concessions, leaving only DF11 still to be awarded.

 

 

In the first round of tenders, three companies bid to operate the DF11 concession, the centrally located 230sq m perfume and cosmetics store. They were Charmzone, Dongwha Duty Free and Entas Duty Free.

 

 

Although Charmzone was declared the tender winner, the bid was nullified after the company failed to provide the required bid deposit by the due date.

 

 

Interestingly, the three other SME licenses attracted less interest during the first tender round. For example, concessions DF9 and DF10 to operate mixed category shops – plus concession DF12 to run a liquor and tobacco outlet – attracted only one qualified bidder each.

 

 

 

 

 

 MORE BACKGROUND TO NEW BIDS

This resulted in these bids being nullified as South Korean government tenders require at least two qualified bids for a tendered contract to be upheld as valid for the process to proceed to the award stage.

 

 

A retendering process for the four SME licenses in March produced winning bids for three of the concessions, leaving DF11 to be retendered. However, there were insufficient qualified bids after at least one of the first round contenders withdrew from the bid process after being deterred again by the high guarantee minimum shop rental fee offered by another contender in its published original bid.

 

 

Among the second round SME concession bidders, Entas Duty Free – which also began operating two duty free shops in Incheon Seaport in mid-2014 – was awarded the liquor and tobacco concession in DF12.

 

 

SME Duty Free, a consortium headed by Hana Tour, which is South Korea’s largest outbound tour operator, won the SME mixed category shop concession DF9, while City Plus was awarded the SME mixed category shop concession DF10.

 

 

Meanwhile, IIAC says plans are on schedule for Incheon Airport’s existing operators – Lotte Duty Free, Shilla Duty Free and Korea Tourism Organisation, to hand over their shops to the winners of the airport’s new duty free concessions on September 1.

 

 

The new concession operators, which so far number Lotte Duty Free, Shilla Duty Free, Shinsegae Duty Free and the three earlier mentioned SME operators – Entas Duty Free, City Plus and SME Duty Free – will renovate their shops and boutiques after taking possession.

 

 

 

 

 

ALL NEW SHOPS TO BE OPEN IN THE LAST QUARTER?

“Every shop will finish redecoration on a different date. Maybe it will all be completed in the fourth quarter, sometime after October,” the IIAC source said. “We have not yet approved operators’ shop plans; we are preparing for that. Shop plan confirmation depends on their situation. We are progressing with this.”

 

 

According to duty free industry sources in Seoul, negotiations between Incheon Airport’s new concession holders and the large number of brands expecting to continue supplying a wide range of merchandise to the airport’s shops have slowed recently, as all parties try to assess the damage to trading that the recent MERS outbreak could cause.

 

 

Whether all operators will have all their merchandise agreements in place and shop plans approved by IIAC by the September 1 take over date remains to be seen. Duty free industry sources say that Incheon’s new SME operators’ shop planning efforts may be affected by the difficulties the MERS outbreak is causing Lotte and Shilla.

 

 

Both Lotte and Shilla are expected to help the airport’s newcomer SME license holders with shop planning and merchandise procurement . This is part of the two leading duty free operators’ corporate commitment to support government policy, which is encouraging SME companies to expand their share of the duty free market.

 

 

However, if the MERS the outbreak is not brought under control quickly, Lotte and Shilla managers may have to spend a lot of time coping with their own falling sales, so reducing the spare time available to help Incheon’s SME operators with shop and merchandise planning.

 

 

For the moment, however, such difficulties have yet to surface. “SME operators have not mentioned any problems. We have no plan to delay the shop openings,” the IIAC source said.