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Incheon Airport Unable to Find Suitable SMEs to Run Duty-free Shops for 5 Months
Economic Democratization Paradox
Incheon Airport Unable to Find Suitable SMEs to Run Duty-free Shops for 5 Months
  • By Jung Min-hee
  • July 20, 2015, 03:30
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The Incheon Airport duty-free shop area is quite popular with travelers.
The Incheon Airport duty-free shop area is quite popular with travelers.

 

Even though Incheon International Airport, which ranks first in duty-free sales in the world, decided to exclusively offer four licenses in the duty-free concession to small and medium enterprises (SMEs) for the first time this year. However, no contract has been completed for five months. Bids by SMEs for one out of the four sections have been canceled four times. Accordingly, some say that the government has allotted too high of a quota for SMEs to Incheon Airport duty-free shops, which have high rent costs, in the name of economic democratization.

According to the Incheon International Airport Corporation (IIAC) on July 19, three SMEs participated in the fifth tender on July 16 to re-select who will run the DF11 section, a perfume and cosmetics area. The IIAC will determine the winner after a final evaluation this week, but it is unclear whether or not the final agreement will be reached. The bids for the DF11 section have been canceled as many as four times this year. In Feb., Charmzone Cosmetics was selected as the final choice to do business in the section with a bid of 203.2 billion won (US$177.28 million) for 5 years rent. However, the bid was canceled after the company failed to pay the 27.7 billion won (US$24.17 million) deposit on the lease. Since then, Regen Cosmetic was chosen as the second winner, but it also failed to pay the deposit. The third tender canceled, since it did not meet the requirements of workable competition. In the fourth bid, Donghwa Duty Free Shop was selected, but it also did not pay the deposit.

The bid winners decided not to pay the deposit due to the fact that they gave up the deal after calculating the potential profitability with the high bids. The minimum rental fee per 3.3 square meters (1 pyeong) of Incheon Airport duty-free shop area stands at 134.44 million won (US$117,292). Lotte Hotel, which has won the bid for Incheon Airport duty-free shops in Feb., will pay 3.6173 trillion won (US$3.16 billion) for rental fees for five years, while Hotel Shilla will pay 1.3253 trillion won (US$1.16 billion). The two companies are saying that they are currently seeing considerable deficits at Incheon Airport. However, large companies are strengthening their duty-free businesses in Incheon Airport in a bid to secure a driving force to expand to the overseas duty-free market based on business experience in the world’s largest duty-free operator, which generates sales of 2 trillion won (US$1.74 billion) a year. In fact, Shilla Hotel has won a duty-free business contract in Singapore’s Changi Airport based on its business in Incheon Airport. On the other hand, it is difficult for SMEs to achieve such intangible results compared with the high rental fees in the airport. Also, this leads to the failure of contracts to be completed, industry watchers said.

With the continuous bid cancellations of SMEs, critics say that the government has put too much aside for SMEs at Incheon Airport duty-free shops. Previously, the Incheon Airport Duty Free had seven sections, which were run by the Lotte Hotel, Shilla Hotel, and Korea Tourism Organization. However, the tenders this year have been divided into 12 sections, and four sections were exclusively offered to SMEs.