[UPDATED] IIAC offers 30% rent cut in new T1 tender

By Luke Barras-hill |

The deadline to submit business and financial proposals is 15 September.

[UPDATED] Incheon International Airport Corporation (IIAC) announced on 6 August a fresh tender for the spate of undecided contracts at Terminal 1, with caveats to attract bidders.

Six packages (four general enterprise; two small and medium-sized enterprises) covering 33 shops and 6,131sq m, part of the original eight concessions revealed in the January T1 tender, will return to market in a competitive bid process.

The five-year leases (extendable by five years) concern perfume & cosmetics (DF2); liquor, tobacco and food (DF3, DF4); fashion/misc (DF6); and all items (DF8, DF9).

In a long anticipated move – and one that will no doubt be welcomed by likely participants Lotte Duty Free, The Shilla Duty Free and Shinsegae Duty Free – IIAC has amended conditions to concession fees as it aims to strike a ‘bolder and more flexible’ approach in an environment decimated by the coronavirus (Covid-19).

RENT AND MAG CHANGES

In key amendments, IIAC has removed the minimum annual guarantee threshold linked to annual increases or decreases in passenger levels (+9%:-9%) until normal monthly demand (+60%) returns.

The estimated rental price has also been slashed by around 30% compared with the last bidding round.

Should passenger levels drop by 40% year-on-year after the Covid-19 pandemic, a force majeure clause in the contract will necessitate a drastic reduction in MAG to a level equivalent to a 50% decrease in passenger levels year-on-year.

Bidders are being given a second opportunity to contest The Shilla Duty Free’s anchor P&C tenancy at Terminal 1.

A spokesperson for IIAC confirmed to TRBusiness that interested parties can register for the tender from 7 September – 14 September.

The deadline to submit business and financial proposals is 15 September. Thereafter, a comprehensive evaluation of submissions will ensue.

General enterprise bids will be weighted according to business (60%) and financial (40%) criteria, while small and medium-sized enterprise bids will be judged on a different ratio for business (80%) and financial (20%) submissions.

As is customary, after preferred bidders are selected they will undergo patent examinations by the Korea Customs Service (KCS) before final operators are confirmed.

Source: IIAC. Click to enlarge.

IIAC has not revealed when it intends to award the contracts and TRBusiness has asked for clarification.

“While the tenant may participate in a number of tenders, the proposer shall not be awarded multiple tenders in the same merchandise group,” the IIAC spokesperson told TRBusiness.

Hyundai Duty Free was selected for the fashion/misc (DF7) concession earlier this year and as such cannot participate in the DF6 bid. The newcomer emerged as the sole bidder in the first round.

Likewise, Entas Duty Free was named for the liquor, tobacco and packaged food concessions (DF10) and cannot bid for all items (DF8, DF9).

KCS DISCUSSIONS WITH KTO

The Covid-19 pandemic and associated nosedive in passenger traffic caused by worldwide border closures has plagued the Terminal 1 duty free tender.

Since then, Lotte, Shilla and Shinsegae Duty Free have been involved in protracted rent negotiations with IIAC regarding existing contracts at Terminal 1.

Shilla and Lotte withdrew their preferred bidder statuses for the DF3 and DF4 concessions earlier in the year.

In line with the January tender, five-year contracts at Terminal 1 were originally due to commence in September ahead of lease expirations this month.

Incheon Airport has promised ‘bolder and more flexible’ lease conditions in the face of a deteriorating economic situation and future uncertainty aligned to the impact of Covid-19.

As reported by TRBusiness, Lotte struck a flexible monthly rent arrangement for its existing liquor, tobacco and food business (DF3) with IIAC last month and Shilla is understood to have agreed something similar for its lease (DF4).

The arrangements for the existing concessionaires are understood to run until February 2021.

IIAC says it is in active discussions with government on plans for rent reductions after September for existing businesses.

The Korea Tourism Organization (KTO) is also said to be concentrating on alleviating financial burdens for operators in collaboration with the KCS.

Bon-Hwan Koo, President, IIAC stated: “In the future, we have focused on the survival of the airport commercial ecosystem by reducing the planned price and devising various measures to alleviate the burden in this bidding, recognising the difficulties in the duty free business due to Corona 19.

“We will do everything we can to prevent any disruption in the operation of duty free shops in case of normalisation and passenger demand recovery.”

A spokesperson from Lotte Duty Free said: “Lotte Duty Free will decide whether to bid for the concessions after carefully examining the details of RFP (fourth phase).”

Stay close to TRBusiness for further developments.

An original version of this article appeared on TRBusiness.com on 06 August.

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