Rent relief negotiations between larger retailer tenants and Incheon Airport had stalled.

Travel retail conglomerates have welcomed South Korea’s move to cut airport concession guarantees by 20% but admit it does not fully address the already burdensome situation.

The financial relief, which lasts for up to six months (March – August), was announced yesterday (1 April) by Minister of Economy and Finance Hong Nam-ki, and comes as South Korea implements further measures to offset the economic impacts of the coronavirus (Covid-19).

Smaller tenants City Duty Free and Grand Duty Free (excluding SM Duty Free and Entas Duty Free classed as ‘medium’ enterprises) have already received a 25% discount on rents for six months, but larger corporates instead received a payment holiday.

Concession negotiations with hub Incheon International had reached deadlock before yesterday’s news.

‘RUNNING OUT OF CASH’

As part of the announcement, rental reductions for SMEs and small merchants have now been expanded to 50% (a jump from 25%).

One source from the ‘big three’ duty free players, consisting of Lotte Duty Free, The Shilla Duty Free and Shinsegae Duty Free, said: “We appreciate the government’s decision to ease the industry’s difficulties caused by the spread of Covid-19. We will continue to do what we can do to overcome this crisis. The measure is timely as we are literally running out of cash now.”

Another said: “We really appreciate that the authorities understand the deterioration of the travel retail business due to the plunge in the number of passengers at Incheon International Airport and made this decision.

“However, we wish there could be an additional reduction reflecting the reality that the rent is several times greater than the sales.”

Daily sales for the ‘big three’ three at Incheon Airport have recently slipped to below KRW100m.

Despite the steep fall in international passenger volumes at Incheon Airport, Lotte Duty Free, The Shilla Duty Free and Shinsegae Duty Free had each been paying monthly minimum guarantees of anywhere between KRW20bn/$16.3m – KRW36bn/$29.3m.

It is reliably understood that the current rent for the ‘big three’ totals  approximately KRW84bn and will now drop to around KRW67bn following the government’s announcements, although daily sales for all three have slipped to below KRW100m.

RESILIENCE BEING TESTED

Another senior industry source told TRBusiness they believed the 20% discount – too little given the circa 90% drop in pax at airports – has more far-reaching ramifications for the supply chains of the larger corporates.

“The loss for duty free retailers is already more than then can endure. The pressure can break their resilience and it will create a chain reaction for brand related business partners.

“We hope April will show some signs [of recovery]. As soon as flights resume between China and Korea, big duty free companies can recover to a certain level.”