Lotte Duty Free to pull out partial T1 business right at Incheon International Terminal… 3 business sectors to be returned
Park Min Yeong | ironlung@ | 2018-02-14 11:10:54

Lotte Duty Free, the No. 1 company in the industry, is expected to lose some of its business rights to Incheon International Airport Terminal 1 (T1) 17 years after failing to overcome the slump in the Chinese market and the downturn in the duty-free business environment. As the airport duty-free shop has increased rents and has recently opened to the second passenger terminal (T2), there is a growing interest in which businesses will fill Lotte`s departure.

Lotte Duty Free, on February 13, has decided to return some of the Incheon International Airport T1 duty free shops and received a letter requesting it to withdraw from Incheon International Airport Corporation. Lotte Duty Free has decided to return the remaining three business rights (DF1, DF5, and DF8), except for the main alcohol and tobacco business license (DF3) among the four business licensees. If the Incheon Airport Authority approves the termination of the contract next month, the Lotte Duty Free Shop will be extended for 120 days and then withdrawn.

Meanwhile, Lotte Duty Free decided to clean up some goodwill at Incheon International Airport due to the deterioration of the duty-free business environment and the burden of rent. Earlier, Lotte Duty Free made a contract with the Incheon Airport duty-free bidding for the third time in 2015, with a contract amounting to approximately KRW 4.1 trillion by August 2020. At the time, sales of Chinese tourists increased by more than 50%, and the duty-free market have been booming. However, in March last year, Lotte Duty Free was hit hard by sales of Chinese tourists shrinking nearly half due to the Sad reprisals. In addition, the duty-free shops in the city became more saturated as the duty-free shops got additional patents, and the patent fees increased 20 times, which made the cost burdens higher.

Lotte Duty Free mentioned, "Incheon International Airport has a KRW 200 billion deficit for two years from 2016," he said. "In this state, operating until 2020, the deficit will rise to KRW 1.4 trillion.”

The Lotte Duty Free Shop has been negotiating rent adjustment with Incheon International Airport Corporation since last September as the situation got more urgent, but it did not narrow the gap. The Lotte Duty Free Shop has officially requested payment of the rent payment method instead of the current minimum guarantee amount, but it has submitted an unfair trade transaction report to the Fair Trade Commission in November last year when it did not show signs of progress. Since then, negotiations have virtually ceased, and Lotte Duty Free has finally withdrawn cards as it was able to demand withdrawal in the third half of the month at the end of this month.

Some argue that it was mistake to have the Lotte Duty Free Store calculate its own excess rent from the beginning. It was an analysis that it was unreasonable to pay the tune amount to gain advantage in the bid. It is also pointed out that it is inappropriate for operators to withdraw from duty-free shops because it is a national infrastructure industry. An official from the duty-free shop said, "Even though Incheon International Airport`s duty-free shop had annual rent of 600 billion won, Lotte`s rent was too high due to unreasonable bets." Even if a new bid announcement comes out, It will be burdensome to do. "

As Lotte Duty Free returns some of its business rights, how much subsequent bidding that will take place in the future will be a matter of concern. Silla, Shinsegae, Hanwha and Doosan are expected to participate in the upcoming bidders. Another tax-exempt industry source said, "The industry response will vary depending on specific conditions such as the minimum bid amount and the operating rate, and the bid zone."

By Park Min Yeong ironlung@

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