Incheon makes arrivals sales forecast as bid closes

By Charlotte Turner and David Hayes |

Incheon-Airport-leadIncheon International Airport Corporation (IIAC) expects first year sales to reach at least KRW 100bn (US$80m) in the airport’s three new T1 and T2 arrival duty free shops, for which bids must be submitted by today’s closing deadline.

 

The arrival shops’ sales forecast is equivalent to 2.2% of Incheon Airport’s record US$2.4bn departure duty free shop revenue in 2018; a 14.8% increase compared with sales in the previous year.

 

According to the schedule, IIAC will announce two shortlisted candidates for each of the two arrival shop concessions on 19 March.

 

Korea Customs Service (KCS) will begin evaluating financial proposals submitted by the shortlisted candidates the following day (20 March). IIAC is expected to announce the successful operator(s) in the first week of April.

 

ALL PRODUCT CATEGORIES PERMITTED

Scheduled to open by the end of May, in time for Incheon Airport’s busy summer season, the new arrival duty free shops will be permitted to sell all product categories except for tobacco and fresh food products.

 

Incheon-Airport-concourse

According to the schedule, IIAC will announce two shortlisted candidates for each of the two arrival shop concessions on 19 March.

The T1 arrival shop concession is for two outlets initially while the T2 concession is for one outlet. The five-year contracts include an option to extend for a further five years and are restricted to SME companies.

 

“We expect KRW 100bn (US$80m) total duty free arrival sales in the first year,” Kim Chang Kyu, Executive Director of IIAC’s Concession Development Group, tells TRBusiness.

 

“We hope for more sales, but we are not sure as it’s the first time to open airport arrival shops in South Korea.”

 

A separate operator may be chosen for each concession or one operator may be chosen to run both concessions. Candidates are free to submit their own shop design when bidding.

 

KOREAN GOODS REPRESENTATION 20%

The only restriction is that Korean goods should account for at least 20% of all products sold in the arrival shops.

T2Incheon_luxury18

Incheon registered sales of $2.4bn in 2018.

“We predict the South Korean passenger share of arrival shop sales will be similar to our Incheon Airport departure shops where about 50% of purchases are by South Korean travellers,” says Kim.

 

“We predict Chinese passengers will want to buy in the arrival shops. Our forecast is that South Koreans will make over 50% of purchases.”

 

IIAC will review the new arrival shops’ performances six months after opening. At that stage a decision will be made to decide whether to approve more arrival shops in T1 and T2.

 

SIX-MONTH TRIAL

“It’s our first time to open arrival shops and we are not sure how many passengers will want to buy,” explains Kim. “We will test for six months and may expand after then.

 

“We think that four arrival duty free shops will be right for T1, and three arrival shops in T2.

 

LT-Entas-Incheon-T1

Entas Duty Free is bidding for the arrivals shop business.

 

“We will test for six months at the beginning, then talk to the government and then maybe expand more arrival shops.”

 

South Korean and imported cosmetics and liquor are expected to be the main items sold in the arrival shops along with red ginseng products.

 

“For liquor the operators may focus on imported liquor brands as they are more expensive, local liquor such as soju is cheap,” adds Kim.

 

NO ONLINE OFFER AT THE START

“There will be no online arrival duty free shopping at the start. We are reviewing the online pre-order shopping system but we have not decided. We may need it in future. We hope to have a good operator for each shop that focuses on customer service not just revenue.”

 

IIAC’s arrival duty free shop plans have generated strong interest among potential SME operators. Some 14 companies attended IIAC’s initial meeting, where the company provided all the details about the arrival shop opportunities and the bidding process.

 

About six or seven companies are expected to submit bids including City Duty Free, Daewoo Development, Dufry Thomas Julie Korea, Entas Duty Free, Grand Duty Free, Kunsan Seaport and SM Duty Free.

 

Incheon-Airport-Shilla-Duty-Free's-T2-P&C-store

Shilla Duty Free’s P&C store in Incheon Airport’s T2.

Meanwhile, TRBusiness understands that a number of potential SME bidders expect liquor sales to occupy a greater share of arrival duty free sales than IIAC’s own forecasts would suggest.

 

“IIAC Consulting expects perfume and cosmetics to be 65% and liquor 30% of sales, but some SME companies expect liquor to be 50%, perfume/cosmetics 35% and other items 15%, which is different to IIAC,” says the manager of one SME duty free company that is bidding for both the T1 and T2 arrival shop licenses.

 

“South Korean people are heavy drinkers and liquor taxes are heavy, so when people travel they usually buy liquor. It’s heavy to carry so if there are arrival shops they will come back and buy, so maybe liquor will be 50% of total arrival sales.”

 

As previously reported, Incheon Airport is just one of several airports in South Korea expected to open duty free arrival shops.

 

Once Incheon’s arrival shop launch is judged to be a success, the government is expected to approve plans by Korea Airports Corporation (KAC) to open arrival shops in Gimpo International Airport in Seoul and in Daegu International Airport, followed by other international airports in future.

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