More arrivals shops to open in 2023, says Incheon

By Luke Barras-hill |

MorearrivalsIncheon_mainimage

Incheon will unveil further arrivals duty free shops once the expansion programme at Terminal 2 (above) concludes in 2023.

Incheon International Airport will unveil further arrivals duty free shops in 2023 on the conclusion of Terminal 2’s phased expansion programme, TRBusiness can reveal.

The world’s leading airport duty free operator is investing KRW4.2tn ($3.6bn) in an ongoing extension of the terminal to construct a new runway and lift the airport’s total passenger capacity to approximately 100m.

“We will open other arrivals duty free shops in 2023 after the post-phase construction of Terminal 2,” Dong-Ik Shin, Director of Concessions Planning Team, Incheon International Airport Corporation (IIAC) told TRBusiness in an exclusive interview.

While further details on the stores were not immediately available, it is foreseeable that the footprint could be bigger than South Korea’s first wave of arrivals shops due to open at the airport later this month.

Dong-Ik Shin_Incheoninterview

Dong-Ik Shin, Director of Concessions Planning Team, IIAC.

ARRIVALS OPENINGS NEAR

Tobacco is excluded under current rules permitting the operation of the shops and [unless legislation changes – Ed] those rules are expected to apply to future stores.

The current purchase ceiling is $600, but TRBusiness understands public demand could increase that threshold to up to $1,000 in the future. 

Entas Duty Free and SM Duty Free are due to open South Korea’s first duty free arrivals shops at Incheon on 31 May having been shortlisted in March.

SM Duty Free will unveil two shops over 380sq m at the eastern and western zones of Terminal 1, while Entas Duty Free will occupy a single 326sq m unit at Terminal 2’s port of entry. Both contracts run for five years with total sales tipped to reach circa KRW100bn ($80m) in the first year.

IIAC received 14 bids for the two concessions available to small and medium-sized enterprises only, TRBusiness revealed previously.

Speaking to this publication recently, an Entas Duty Free Spokesperson expressed their satisfaction to the company being selected to open one of the arrivals units, which will offer all product categories aside tobacco and fresh produce under a $600 allowance ceiling (as alluded to above).

“The target is KRW35bn for the first year,” they said. “The main categories in the arrival store will be liquor. We will have all major brands in the liquor segment and will try to have all major cosmetics brands as well, but it takes time to negotiate with these labels.

“At the end of this month we open the store, so the schedule is very tight. Perhaps we will open a temporary cosmetic shop within the main store. Once the full negotiations are complete, we will have the major cosmetics brands.”

Entas_T1

Entas Duty Free is in the race to secure a further Terminal 1 departures store as part of a new SME tender. Pictured: Entas Duty Free liquor & tobacco concession at Terminal 1.

“Until recently, many people in Korea did not realise there would be arrival duty free stores. Now word is getting out through the media and people are curious [about] how many brands there will be in our store and what kind of items will be there. We will have a better idea as to how things are progressing in two or three months.”

Separately, the Spokesperson revealed Entas Duty Free is also bidding to operate another SME store at Terminal 1 departures [Entas Duty Free already runs a liquor/tobacco and accessories unit there – Ed], but further detail was not immediately available.

EXTENSION PERIOD ‘NOT DECIDED’

As reported via Twitter last week during the TFWA Asia Pacific Exhibition & Conference, IIAC finally revealed details of its much-anticipated Terminal 1 duty free tender.

In a shift away from the previous five-year terms, the airport is poised to go to market with a 10-year opportunity (including a possible semi-automatic five-year extension period) at the end of October or beginning of November. The new tender concerns eight concessions and 48 outlets over 8,749sq m of space.

The contract, which 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 recently re-tendered and won by Shinsegae Duty Free], is due to begin on 1 September 2020 and runs until 31 August 2031.

The concession fee will be calculated according to a minimum annual guarantee (MAG) combined with a percentage fixed rent. In a change of direction, the MAG will linked to passenger growth figures.

IncheonT1tender

The minimum annual guarantee portion of the concession fee will be calculated according to passenger growth.

As anticipated, bids will be open to international operators and as such, IIAC is encouraging foreign bids.

It is worth noting though that IIAC’s acknowledgment that it will not ‘discriminate’ against these foreign bids is perhaps more overt this time, following previous dissatisfaction regarding South Korea’s divisive two-tier judging system, which sees the Korea Customs Service ratify bids after their initial evaluation.

“There is no discrimination against foreign operators,” said Dong-Ik Shin. “I think there is no difference in the bidding or evaluation processes [compared to 2014/15]. We have significant changes in the duty free tender later this year. One is the duration of the extension to 10 years from five years, meaning operators may operate their business with a long-term perspective.”

In a presentation, IIAC shared the names of retailers that may look to bid for the tender, including The Shilla Duty Free, Dufry, Lagardère Travel Retail, King Power, Gebr. Heinemann, DFS Group, Lotte Duty Free, WHSmith, Duty Free Americas, Ever Rich Duty Free, Shinsegae Duty Free, Dubai Duty Free and CDFG/Sunrise.

IIAC said meetings with potential suitors regarding the timing of the tender took place last week during the TFWA Asia Pacific Exhibition and Conference.

During the show, rumours of a potential delay to the October/November tender issuance were put to IIAC by TRBusiness, with Dong-Ik Shin confirming it is pushing to meet the timeframe despite the controversial – and complicated – issue surrounding the semi-automatic five-year extension period to the contract.

“[The five-year extension period] is not decided yet because the opposition party bill […] has been tabled in Parliament and is still pending [approval],” he commented.

IncheonT1footprintpsd

“One thing is clear – the ruling party is completely opposed to passing the bill, so we will announce a new duty free tender in Terminal 1 without delay.”

It is understood that while the likes of The Shilla Duty Free would welcome the five-year extension to the Terminal 1 licences, Lotte Duty Free on the other hand would likely oppose any ruling to grant the extension due to the inevitable constraints on its ability to re-bid for the business it surrendered last year.

Currently, seven operators run 12 concessions at Terminal 1, which accounts for 71% ($1.7bn) of Incheon Airport’s $2.4bn (+14.8%) duty free sales haul in 2018.

This compares to six companies operating six concessions at Terminal 2, which contributed the remaining 29% of duty free revenues ($700m).

At Terminal 2, IIAC confirms it is satisfied with the progress being made by anchor tenants Lotte Duty Free and The Shilla Duty Free, who began operating the liquor, tobacco and packaged foods and perfumes and cosmetics concessions, respectively, last year.

Meanwhile, Shinsegae Duty Free is performing well since taking over the Terminal 1 concessions exited by Lotte last year due to THAAD and rent burdens, although IIAC says sales are tracking slightly below Lotte Duty Free’s for the same period year-on-year.

Airstar_AveT1

The Terminal 1 tender is expected to proceed as planned in late October/early November, undeterred by the political wrangling concerning a possible five-year semi-automatic extension of the contract.

All categories have improved their revenues, says Dong-Ik Shin, who reiterates that the opening of Terminal 2 –  home to Sky Team carriers’ Korean Air, Air France and Delta –contributed significantly to Incheon Airport’s duty free success last year.

While Terminal 2’s contribution to overall duty free revenue remains more modest (29%) compared to Terminal 1 (as above), Dong-Ik Shin believes the concession model based on MAG linked to passenger levels can spike sales moving forward.

Currently, average spend per pax at Incheon’s terminals is around $71 – up 2% from $69 in 2017, with Chinese passengers spending the most lucrative ($188).
At Terminal 2, average spend per pax equates to around $103 despite its share of passengers (26%) due to the lack of LCC carriers and a strengthened focus on luxury concessions.

“We have some major duty free operators at Incheon who have successfully introduced luxury items such as Prada, Gucci and Louis Vuitton that are favoured by Chinese, Japanese and Koreans,” he explained, adding that stakeholders’ agility in reacting to and embedding trends such as K-wave into their marketing promotions is responsible for the continued success.

Incheon_Dong-Ik Shin TFWA APAC address

Dong-Ik Shin addressed delegates during last week’s TFWA Asia Pacific Conference plenary sessions.

CHINESE VOLUMES ‘ALMOST RECOVERED’

The well-documented siege on Chinese group tours instigated by Beijing in retaliation to the THAAD crisis dealt a significant blow to South Korean duty free, including Incheon, where its share of Chinese passengers sank significantly.

In October, IIAC Executive Director of Concessions Development Group Chang-Kyu Kim told TRBusiness that it expects Chinese passengers’ share of total volumes to increase to around 20% by the end of 2019, and the latest update seems encouraging.

“We’ve almost recovered,” said Dong-Ik Skin. “The number of Chinese passengers slumped by 22% in 2017, but things are better.”

IIAC also confirms that Chinese passengers’ share of total spend continues to remain stable at almost 35% in 2018.

Overall, international travellers account for 51% of the duty free sales share at Incheon Airport, with Korean travellers at 49%.

In South Korea itself, more than 25m people from its 52m population possess a passport.

Last year, Incheon handled 68m (+10.7%) passengers, of which 67m were departing international pax.

Domestic travellers account for the bulk of passengers (67%), followed by foreigners (33%), with the Asian hub serving serves 90 airlines connecting to more than 188 destinations in 60 countries, including 36 cities in China and 24 in Japan.

Commercial concession income’s contribution to Incheon’s total revenue is healthy (54%) and takes a large chunk of non-aeronautical revenues (82%).

Perfumes & cosmetics remains the leading category, accruing sales of $948m last year (40%).

DF&TR sales at Incheon in the first quarter of this year were up 8% and with more Chinese passengers flying to Incheon, revenues expect to lift by more than 7% this year.

Middle East

JEDCO launches multi-category tenders at KAIA T1

Jeddah Airports Company (JEDCO KSA) has issued a request for proposals for several...

International

Alcohol insights: Conversion up, spend down in Q4

Conversion of visitors in the alcohol category in duty free has risen to 54% in Q4 2023,...

Asia & Pacific

Heinemann Asia Pacific makes breakthrough in New Zealand at AKL

Heinemann Asia Pacific is set to enter the New Zealand market with three new retail concepts at...

image description

In the Magazine

TRBusiness Magazine is free to access. Read the latest issue now.

E-mail this link to a friend