Incheon International Airport Corporation (IIAC) has confirmed to TRBusiness that Lotte Duty Free (Lotte) and The Shilla Duty Free (Shilla) will shutter their Terminal 1 shops at the end of February before the launch of a fourth duty free tender.

Both travel retailers have been operating extended leases under flexible rent arrangements since the end of August after bidders reneged on signing contracts for the Terminal 1 duty free concessions in the wake of the worsening Covid-19 crisis.

Lotte currently holds the DF3 (L&T) lot while Shilla holds the DF2 (beauty), DF4 (L&T) and DF6 (fashion/misc) leases.

IIAC Deputy Executive Director of Concession Marketing Group Bumho Kim said the licences held by Lotte and Shilla at Terminal 1 terminate on 28 February.

BIDDING TO RESTART

The duration of the leases held by Lotte and Shilla under the auspices of the Korea Customs Office rules out an extension of the contracts.

“We failed to find out the successors for DF2, DF3, DF4 and DF6 in T1 over the months, so the operations are delayed,” said Kim.

“The bidding process will restart in March or April. And for this coming bidding, we will alleviate some conditions for bidders considering the Covid-19 situation.”

Existing concessions operated by Shinsegae Duty Free (DF1, DF5) and Hyundai Duty Free (DF7) under separate contracts are unaffected by the new tender.

As reported in December, TRBusiness had been aware that IIAC was involved in internal discussions regarding the future of the T1 concessions after three failed bidding rounds last year.

There were suggestions that direct negotiations between retail operators, including Lotte and Shilla could resolve the scenario, although an official letter sent to 10 companies fell on deaf ears and IIAC subsequently ruled out further direct approaches.

FIXED/PERCENTAGE RENT COMPROMISE

While IIAC could not confirm the exact rental terms of the new tender, it is gathered there will be flexibility built in to the concession arrangements.

“We will take the middle of a fixed-based and percentage rent [model],” Kim told TRBusiness. “We are trying our best to reduce the burden [for concessionaires]. Covid has presented lots of difficult for the airport duty free business. All operators are asking for percentage rents.”

IIAC adds that July/August is a realistic timeframe for new shops to open should tenants be appointed in the latest tender.

In the meantime, IIAC says talks are underway to establish provisional shop units run by Shinsegae Duty Free and Hyundai Duty Free to occupy the spaces left vacant by Lotte and Shilla until new tenants are appointed.

The long-running saga at Incheon Terminal 1 takes another twist, with an expected fourth tender [as mentioned] set to be launched in the coming months.

As reported, Lotte and Shilla had surrendered their preferred bidder positions for the DF4 and DF3 liquor & tobacco concessions, respectively, in April as a result of unsustainable operating conditions linked to the coronavirus pandemic.

This paved the way for Lotte and Shilla to negotiate extensions to their concessions at Terminal 1. These were originally due to expire on 31 August.

The Shilla’s anchor beauty concession (DF2) received no interest, while its fashion/misc (DF6) concession received a sole bid from Hyundai Duty Free, rendering both RFPs redundant as they failed to meet the minimum bidding requirements.

IIAC has already selected Hyundai Duty Free for the fashion/misc concession (DF7).

In October, Incheon hinted at direct negotiations for the first time after failing to coax interest in the six concessions up for grabs (DF2, DF3, DF4, DF6, DF8 and DF9).

It originally launched the T1 tender, which covered eight airside duty free packages over a total of 40 shops and an initial 8,628sq m of retail concession space, in January 2020.