Duty free and travel retail sales at Incheon International Airport rose by 2.3% in the 10 months ending 31 October this year, as anticipation surrounding the release of the Terminal 1 duty free tender heightens. 

Should that rate of DF&TR growth (circa +2%) persist to year-end – notwithstanding a possible spike in sales during the festive season– it would represent a noticeable dampening of the +14.8% rise in sales to $2.4bn recorded in 2018.

In a recent interview, Incheon International Airport Corporation (IIAC) Director of Duty Free Management Team Sungbin Im says the 10-month return was attributed in part to currency-related losses in H1.

Slackening export demand and stock market uncertainty in South Korea in recent months due to the ongoing US-China trade war has been symptomatic of the broader global economic downturn [although South Korean stocks appear to have rebounded in recent days amid renewed optimism for a sino-US trade deal – Ed].

PURCHASE LIMIT RISE: LITTLE IMPACT

Sungbin Im admitted: “Due to the currency exchange rate, this year has not been the best year for the Korean duty free market. The KRW depreciated throughout the first half of this year, and is recovering from the downturn since September.”

One factor that could prove favourable to IIAC’s finances at year-end is an increased allowance ceiling for departure duty free allowances.

As reported, legislation effective from September lifted the duty free departure purchase limit for Koreans from $3,000 to $5,000, following previous considerations by the South Korean government .

Together with the arrivals purchase limit of $600, the total purchase allowance per person increased from $3,600 to $5,600, however, the tax exemption limit of $600 remains.

The move at the time was broadly welcomed by the Korean travel retail industry with sources agreeing it was ‘well overdue’, although some were sceptical on whether it would result in actual sales increases due to the static tax exemption level.

Since September, IIAC says customers have benefitted from being able to increase their luxury shopping baskets, notably among brands such as IWC Schaffhausen, Omega and Chanel. However, the effect at till-point appears to be negligible at this early stage.

“There is surely room for sales increases, but still it doesn’t seem to have had any major impact on airport duty free sales so far,” admitted Sungbin Im.

“Brands and retailers could expand the product ranges they release to the duty free market, which would lead to better customer experiences and increased sales.”

The dynamic daigou market is another influencer on sales, evidenced by the way the phenomenon has shifted consumer purchasing habits.

New regulations implemented at the beginning of this year to regulate the daigou market were tipped to negate sales volumes, but then – as now – that has not appeared to have materialised.

“It seems the new regulations have had a minor impact on Incheon Airport’s duty free, meanwhile, daigou visits are increasing in frequency,” said Sungbin Im.

TERMINAL 1 TENDER NEARS…

Importantly, the industry is braced for the imminent release of the new duty free tender at Terminal 1.

The operator has been tight-lipped about the exact timing of the issuance, although the mood in conversation with Korean industry observers is it is imminent and could potentially be released in December.

Current lease contracts for the eight concessions over 8,749sq m of space at Terminal 1 are due to expire in August 2020.

The five-year contract (plus a possible five-year semi-automatic extension) covers lots currently held by The Shilla Duty Free and Lotte Duty Free won in 2015 (excluding the latter’s surrendered non-L&T lots won by Shinsegae Duty Free last year).

The concessions are due to begin on 1 September 2020 and run until 31 August 2031.

“Preparation of the tender is on track, according to the [leases] expiration date, so every shop can open on time without delay,” said Sungbin Im.

According to IIAC, no ‘foreign’ duty free retailers have ‘officially’ shown an interest in the tender, although whether that lack of interest also extends to any ‘unofficial’ declarations remains to be seen.

The latter scenario seems highly unlikely given the fervour around the tender and the list of potential prospective bidders touted when details of it revealed during the TFWA Asia Pacific Exhibition & Conference earlier this year.

Indeed, TRBusiness is well aware of the importance of the tender to travel retailers via conversations with sources and it will come as no surprise to hear that the TFWA Asia Pacific Exhibition & Conference was used by IIAC as a barometer to establish interest among prospective bidders.

Aside Lotte Duty Free, Shinsegae Duty Free and The Shilla Duty Free, possible suitors include Lagardère Travel Retail, King Power, Gebr. Heinemann, DFS Group, WHSmith, Duty Free Americas, Ever Rich Duty Free, Dubai Duty Free and CDFG/Sunrise.

Several of those ‘foreign’ businesses have to date either declined to comment or expressed that the bid isn’t on their immediate radar, when approached by TRBusiness.

Needless to say, this publication remains in conversation with various sources on the issue and will endeavour to update you with further information as it surfaces.

‘FURTHER ARRIVALS SHOPS IN KOREA’

That aside, IIAC says the arrivals duty free business has stabilised after a sluggish start earlier this year.

Entas Duty Free and SM Duty Free opened South Korea’s first arrivals duty free shops in May after IIAC received 14 competitive bids for the business, which was available to small- and medium-sized enterprises only.

As reported exclusively by TRBusiness, Incheon Airport is planning to open more arrivals shops in 2023 on the completion of its phase 2 expansion programme and these are likely to assume a larger footprint than the existing ones, which span 1,086sq m across Terminal 1 and Terminal 2.

The units are permitted to sell all product categories excluding tobacco and fresh produce under a $600 allowance ceiling.

Updating TRBusiness, IIAC says the South Korean Government is now considering opening brand new arrivals shops at other Korean airports.

“We have to take into account many other factors; regulations of customs, basic facilities, customer behaviour and sales efficiency,” commented Sungbin Im.

Developments at Incheon come amid a hive of activity in downtown Seoul, with recent patent applications for Incheon Port International Passenger Terminal and further downtown duty free shops licences open to small- and medium-sized companies.

The Korea Customs Service (KCS) has in the past month released a tender inviting submissions from SMEs to bid for duty free shops in Seoul and Chungnam with a deadline of 31 March 2020.

WALKERHILL HOTEL DENIES DUTY FREE CLAIMS

Hyundai Department Store Group emerged as the sole contender in the most recent round of duty free licence bidding open to major conglomerates, with Lotte Duty Free sharing its reasons for not competing for three available licences in Seoul in an exclusive interview.

The KCS released patent application notices to operate duty free shops in Incheon, Seoul and Gwangju in May.

Hyundai Department Store Group will take over Doosan Corporation’s Doota Duty Free shop in a KRW61.9bn conditional acquisition.

Unconfirmed reports say Hyundai will rent the site over five years from Doosan for KRW50bn per year.

One source tells TRBusiness the licence review committee of the KCS is scheduled to meet later this week to convene on the process, although that is yet to be officially confirmed.

In the past week, Grand Walkerhill Seoul hotel has dispelled suggestions it plans to house duty free shops at its premises where it used to operate a duty free store.

TRBusiness was aware of a report in Korean media and in conversations with several industry sources that claimed the SK Group hotel’s duty free shop premises in eastern Seoul had been earmarked as part of a consortium bid comprising small- and medium-sized operators.

Speculation the hotel could be the site for shops surfaced following the most recent submission deadline (14 November) for large duty free conglomerates, as mentioned above.

A Spokesperson for Grand Walkerhill Seoul hotel confirmed to TRBusiness there are no such plans to open shops at the site in the near future.