SEOUL, Nov.28 (Korea Bizwire) – A five-year cycle to pick duty-free shop operators within Incheon International Airport has returned again, forewarning fierce competition ahead.
The Korea Customs Service posted on November 27 on its website that it would receive applications for new retail shop operators in the immigration area past the departure gate. According to the bid notice, the customs authority will this time divide the duty-free area into 12 sections currently run by Lotte, Shilla, and the Korea Tourism Organization. The three operators’ duty-free shop areas are 5,519, 7,597, and 2,535 square meters, respectively.
In the duty-free retail business, Incheon Airport is considered a must-have space as it is the yardstick by which major league and minor league operators are divided. In addition to intangible brand reputation, this status is helpful for getting additional business in airports elsewhere.
For example, the previous experience of running a duty-free shop in other airports is often required as one of the conditions for setting up shop in an overseas airport. The mere fact that there is a presence in one of the world’s largest international airports in Incheon can give a significant leg up.
Getting in on the retail shop floor of Incheon International Airport is also important in terms of securing scale economies. The purchasing power of a duty-free shop operator is proportional to its negotiating power vis-a-vis famous foreign brands.
Given the sales ratio of Incheon Airport shops accounts for 25-30 percent of total sales in Korea, this is something for retail operators not to be missed. For this reason, new entrants like Shinsegae as well as incumbents like Lotte and Shilla are determined to get the five-year license this time. The question is how many operators will be allowed in the sections assigned for large companies.
It is likely that at least nine bidders will submit tenders including Shinsegae, Hanwha Galleria, Walkerhill, Hyundai Department Store, Dufry, and DFS, as well as incumbent players like Lotte, Shilla, and the Korea Tourism Organization.
Of the 12 sections, four were reserved for small or middle-standing enterprises. For the remaining eight sections, the Korea Customs Service will select three operators. That means one of the “Big 4″ operators, including Lotte, Shilla, Shinsegae, and Hanwha Galleria, will miss the chance to getting in on the opportunity.
A duty-free shop official commented, “It is hard to imagine Lotte or Shilla missing out on the chance. If Shinsegae or Hanwha Galleria fails to get the license, it may have to fold the duty-free shop business altogether.” As for Lotte and Shilla, there is no margin of error this time in securing the license.
A Shilla Duty Free official said, “There’s no question we will bid for the new licenses as the No. 1 player in the business. Given the bid notice, we can apply for up to four sections and we will do our best to get as many licenses as possible.” A Shilla official also showed determination by saying, “We made important contributions in making the Incheon Airport duty-free shops one of the world’s best duty-free areas by introducing a Louis Vuitton store. We will keep growing with Incheon International Airport.”
Shinsegae, meanwhile, considers the entry into the airport as a life-and-death issue. A company official said, “According to the recent customs service notice, the opportunity for large-company operators has become wider than before and we got our hopes up this time as an operator with duty-free shop business experience of three years.”
As for Hanwha Galleria, it is weighing the possibility between the entry into the airport and a stand-alone duty-free establishment within Seoul’s downtown as it is the weakest player among the Big 4.
By Sean Chung (email@example.com)