One of the highest turnover boutiques ever to land in the travel retail channel – the Louis Vuitton store at Incheon International Airport (ICN) – will be handed over to Lotte Duty Free from current operator, Shilla Duty Free, in the autumn.

The move is the direct result of yesterday’s announcement by Incheon International Airport Corporation of the winning bids for the duty free tenders at ICN which will run for five years.

Among the eight general packages available, Lotte picked up four, Shilla got three and newcomer to ICN’s airside business, department store group Shinsegae, took one (see table below). That result meant that long-time retailer at ICN, Korea Tourism Organization is no longer part of the duty free line-up.

By capturing the DF5 package – at the heart of the ICN retail offer and where the Louis Vuitton boutique is positioned – Lotte takes control of a highly coveted retail asset. Other brands in this area include Hermès, Salvatore Ferrgamo, Coach and Bulgari.

Before the LV store was opened in September 2011 by Shilla, a spat broke out between the two retail rivals over the ‘fairness’ of the new operation. Since then, Lotte has watched the LV boutique rake in huge revenues for Shilla: $300,000/day in early 2012 before levelling off to $240,000/day.

Now that the tables are turned, Lotte will get the chance to see if it can leverage even higher daily sales out of Chinese and Korean travellers at the hub, at this and the other luxury boutiques it will soon control.

How the transition and timing will work is still not established, but Shilla Duty Free Senior Executive Vice President & Head of Duty Free Business, Jason Cha, tells TRBusiness: “Yes, we need to hand LV over to Lotte. It will be in September.”

 

 

LOTTE TAKES ALMOST 60% OF THE CAKE

Among the core packages (DF1-DF8) covering 15,206sq m, Lotte has taken 8,849sq m or 58.2%, Shilla 3,501sq m (equivalent to 23.0%), and Shinsegae 2,856sq m (18.8%). Companies that lost out were KTO and King Power Duty Free (Thailand), the only overseas bidder. IIAC says that its choices were governed by a formula that was 60% weighted to the business proposal, and 40% to the financial proposal.

Of the remaining packages (DF9-DF12) set aside for SMEs, only DF11, covering 234sq m, was awarded. It went to newcomer Charmzone which will sell beauty and ‘other’ categories. Rivals included Donghwa, Entas, Charmzone, Grand Hotel and City Plus.

IIAC says in a statement: “DF9, DF11 and DF12 were annulled because the tender participants could not complete their required process [omission of the tender participation deposit].” These SME packages will be retendered at a later date.

IIAC has not disclosed the amounts of the winning bids but says it will do so later. However the airport operator has informed TRBusiness that the total tender amount across the packages “increased substantially”.

NO NEW SHOPS UNTIL SECOND HALF

While existing contracts end this month, new operators will not take over shops until current operator licences are finalised. “We know that the lead time is too short for everyone,” a senior IIAC source tells TRBusiness. “Therefore we have already talked to the Customs authorities about extending current licences to allow for fitting out and stock purchase time for the new operators.”

In the circumstances, 4-6 months can be allowed for this process from March 2015, however the specific date is not fixed yet. TRBusiness reliably understands that, legally, this does not constitute an extension of a licence but a ‘clearing out period’.

A NEW RETAIL BENCHMARK?

The airport is confident the new stores that will be erected will be ‘iconic’. The IIAC source says: “All the operators are eager to install top-grade shops. Due to the bidding competition, their rent is substantially higher and there are two reasons, in particular, that the new shops will be very up-to-date and iconic.

“Firstly, the business proposal of each operator was carefully evaluated by an expert panel. That means, these operators have already paid a lot of attention and cost to bringing in the best shops they could imagine. And the proposal is an integral part of the contract which they have to abide by. Secondly, these shops are like a showroom for each operator so we expect them to be the very best.”