Incheon International Airport Corporation (IIAC) has finally released its much-vaunted duty free concession menu for Terminal 1 following months of anticipation.

As expected, a total of eight proposed airside packages (five general enterprise; three small and medium-sized enterprises) spanning a total of 40 shops over an initial 8,628sq m of retail concession space are up for grabs.

This will rise to 50 shops over 11,645sq m after August 2023 [see below] with each tender package running for a period of five years (60 months) with an option to extend to no more than 10 years.

Amid a slightly tweaked concession bundle in terms of store allocation, liquor & tobacco (DF3) and fashion/misc (DF6) packages will increase their totals to nine and 14 shops, respectively, after August 2023.

At 1,258sqm, the stronghold cosmetics and perfume concession (DF2) currently held by The Shilla Duty Free is likely to be fiercely contested, alongside the fashion/misc space (DF6). This covers 1,887sq m and lifts to 3,892sq m after August 2023.

The bids exclude previously awarded packages operated by Shinsegae Duty Free (DF1, DF1-2, DF5) and Grand Duty Free (DF11).

As it stands, Incheon Airport’s retail landscape has seven operators running 12 concessions (including the above).

Having relinquished the aforementioned concessions now held by Shinsegae Duty Free, Lotte Duty Free will be expecting to claw back ground at Incheon Terminal 1 as Korea’s number one duty free player currently operates liquor & tobacco and food concessions only.

“All we can do is examine the RFP in detail for now since it has just been issued,” reacted a Lotte Duty Free source.

FINANCIALS IN FOCUS

Financials are calculated according to the greater amount between the minimum annual guarantee and percentage fee, says IIAC. The financial proposal shall be higher than the minimum acceptable MAG offered, its adds, with all proposers paying a tender deposit of at least 5/100 of the tender price.

Operators must make a monthly payment of 1/12 of MAG from the following month of business starting date to the IIAC.

Accepted minimum annual guarantees are as stated in year one [below]. From year two, they will be based according to a 50% rate of change in passenger volumes but limited to a 9% annual increase/decrease rate.

MAG for the shops in the concourse and packages DF3 and DF6 shall be calculated based on the MAG of the fourth year separately presented by the tenant.

In year five, MAG will be calculated according to the 50% increase or decrease in pax volume departing from T1 and the concourse added to or deducted from the previous year’s MAG.

Operators must pay any difference to IIAC should the percentage rent (semi-annual turnover multiplied by percentage fee) exceed the sum of semi-annual MAG payments.

Winning bids for the general enterprise concessions will be based on a weighting of business proposals (60%) and financial offers (40%).

The SME concessions will be evaluated according to business proposals (80%) and financial offers (20%). Concession operations begin on 1 September in line with current lease expirations in August.

Bids are accepted on any number of packages open to large conglomerates (DF2, DF3, DF4, DF6 and DF7), but proposers will not be awarded multiple tenders in the same merchandise category. Joint or consortium bids are not permitted.

Corporations must possess a capital of more than KRW1 billion (US$864m) to submit proposals.

Business and financial submissions are to be made on 27 February at the main conference room on the fifth floor of West Hall.

A BLANK CANVAS FOR CREATIVITY

A tender presentation and tour of the facilities is due to be held on 22 January at 14:00pm.

Bid concentration, including from eligible foreign companies, will likely centre on The Shilla Duty Free’s anchor perfumes & cosmetics concession (DF2). The travel retailer will look to defend this, alongside its liquor & tobacco (DF4) and fashion & accessories (DF6) business.

“We will prepare the concession [proposal] after careful examination of the request for proposals,” A Shilla spokesperson confirmed to TRBusiness.

According to the RFP document, DF2 located in the T1 West zone offers five shops over 1,257.78sq m of prime retail space.

One of the shops (75.56sq m) is required to ‘build buzz about domestic perfumes & cosmetics’ through new concepts, with a heavy emphasis on customer experience and interaction. This interactive area should account for more than 60% of the total floor area, aside from the sales space.

Of the ‘big three’ Korean players, Shinsegae Duty Free has already confirmed to this publication that it will mount a concerted effort across all the bidding categories [watch out for the January issue of TRBusiness for a full report].

As reported, Incheon Airport eclipsed the US$2bn mark (US$2.43bn) for DF&TR revenue again last year, a result it equates to increased passenger traffic – the airport told TRBusiness it achieved growth of +4.5% in departing international passenger volumes – the renovation of several departure duty free stores, and the opening of South Korea’s first arrivals duty free shops.

Arrivals shops will be given a timely boost from February following an amendment to customs regulations permitting the sale of tobacco, which was previously excluded from the mix.

In a statement, IIAC said: “Duty free shops in ICN Passenger Terminal 1 form symmetry around the central area so that passengers can drop by stores with core merchandise categories after immigration and have the same shopping experience both in the East and the West [zones].

“Stores in the departure area in the East and the West of Passenger Terminal 1 display a vast category of brands and merchandise from perfume and cosmetics to liquor and tobacco and fashion, and have efficient passenger routes centred on choke points in the East and the West for a convenient shopping experience.

“With Louis Vuitton in the centre, about 20 boutique collections form a luxury zone in the airport with classic or trendy interiors based on brand identity.

“The gate zone beyond the central retail area accommodates necessary shops centred on steady sellers, and is configured into a complex shop comprising all items including perfume and cosmetics, liquor and tobacco, and fashion, optimised for last-minute shopping right before getting on board.

“In the Concourse, usually visited by passengers of low-cost carriers (LCC) or foreign airlines, tenants can freely configure shops and merchandise with their own concept and story so as to provide unique and differentiated in-store experiences and services compared to other shops.”

Stay close to TRBusiness for more analysis…