[Exclusive] Cityplus Fails to Pay Deposit, Faces Risk of Forfeiture of Incheon Airport Duty-Free Business License

Continued Controversy Over Selection of 4th Duty-Free Operator at Incheon Airport T1
Cityplus Requests Extension After Missing Lease Deposit Deadline
Airport Corporation Grants Exceptional Extension Reflecting COVID-19
Fairness Debate Arises with Existing Duty-Free Candidates

[Image source=Yonhap News]

[Asia Economy Reporter Cha Min-young] As Lotte Duty Free, Shilla Duty Free, SM Duty Free, and Grand Tourism Hotel have given up their duty-free business rights for the 4th phase at Incheon International Airport Terminal 1 (T1), Cityplus, which was confirmed as the duty-free business partner in the small and medium-sized duty-free sector, is also at risk of relinquishing its business rights. Concerns are rising that the duty-free shops at Incheon Airport will be left vacant as companies that won the rights are abandoning operations in bulk.

According to the duty-free industry and Incheon International Airport Corporation on the 20th, Cityplus, which signed the T1 4th phase small and medium-sized duty-free business agreement on the 6th, failed to submit the rental deposit (guarantee) by the deadline of the 16th and applied for an extension of the payment deadline. The area Cityplus won the bid for is DF9 (all items). Incheon Airport Corporation accepted Cityplus’s request and extended the deadline to May 6, one month after the announcement date (April 6), citing consideration of the COVID-19 variable.

This is a violation of the original Incheon Airport’s duty-free operator selection procedure (RFP). The duty-free operator selected as the preferred negotiator must sign a standard contract with the airport corporation and pay the bid deposit. Then, from the point when their status is elevated to a preliminary business partner, they must submit the rental deposit (guarantee) within 10 days. The guarantee is issued by private guarantee insurance companies such as Seoul Guarantee Insurance based on financial indicators and the possibility of future fund recovery.

There is also controversy over fairness with existing candidates due to Incheon Airport Corporation’s unusual decision. After being selected as the preferred negotiator, some operators like Grand Tourism Hotel requested an extension of the rental guarantee payment period citing COVID-19, but such requests were dismissed on principle. Other duty-free operators who met the payment deadline also felt awkward. Even considering the COVID-19 variable, the rental guarantee submission deadline has been regarded as a strict rule in the past. Representative cases include cosmetics company Chamzone and mask pack specialist Rejen in 2015. Although there was some regret over the forfeiture of bid deposits due to their status as small and medium-sized enterprises, the rules were enforced as usual.

There is also speculation that Incheon Airport Corporation’s decision to extend the payment deadline reflects a sense of crisis on their part. In this 4th phase duty-free operator selection process, they failed to select operators for perfume and cosmetics (DF2), fashion and others (DF6), as well as DF3 (fashion, others) and DF4 (liquor, tobacco). Large companies such as Lotte Duty Free and Shilla Duty Free, as well as small and medium-sized duty-free shops like SM Duty Free and Grand Tourism Hotel, have consecutively withdrawn citing difficulties such as COVID-19 and excessive rental burdens. Among large companies, Hyundai Department Store Duty Free, and among small and medium-sized duty-free shops, only Entas Duty Free are expected to proceed with duty-free business through normal procedures starting this September.

An official from Incheon Airport Corporation explained, "Considering the special crisis situation of the COVID-19 pandemic, we extended the rental guarantee submission deadline for Cityplus, which has obtained the status of a negotiation partner. We also received a promise from the operator that they will not raise objections if the bid deposit is forfeited due to difficulties in finalizing the contract."