Decision to Return DF2 Zone Business Rights
Second Withdrawal in Two Years Following Shilla Duty Free
Ongoing Rent Burden Leads to Failed Mediation and Suspension of Operations
Airport Authorities: "We Will Accelerate Additional Bidding and
Shinsegae Duty Free has decided to return part of its duty-free concession at Incheon International Airport. After appealing for a rent reduction due to sluggish business conditions, which was rejected by Incheon International Airport Corporation, the company has chosen to withdraw from the business, following Shilla Duty Free.
Shinsegae DF, the operator of Shinsegae Duty Free, announced on the 30th that its board of directors had decided to return the concession rights for the Incheon Airport Duty Free DF2 zone (cosmetics, perfumes, liquor, and tobacco).
The company explained, "Continuing operations would only increase losses and the business losses are too great," adding, "We have inevitably decided to suspend operations in the Incheon Airport Duty Free DF2 zone to improve operational efficiency and enhance profitability in the duty-free business." The company also stated, "In the mid- to long-term, we expect to see improvements in our financial structure and profitability. We plan to focus our capabilities on the Myeongdong downtown duty-free store and the DF4 zone (fashion and accessories), and pursue profit and loss improvement through efficient operations."
Shinsegae Duty Free won the Incheon Airport duty-free concession in 2023 under the condition of paying rent calculated based on the average spending per passenger at the airport. However, despite a rapid recovery in the number of outbound travelers after the COVID-19 pandemic, duty-free sales did not increase due to factors such as a strong exchange rate, economic slowdown, decreased purchasing power of key customers, and changes in consumption patterns, resulting in continued losses.
In response, the company requested a temporary rent reduction from Incheon Airport and filed for mediation at the Incheon District Court in April. However, negotiations broke down as the airport corporation, citing fairness issues with unsuccessful bidders, did not attend two mediation sessions. Subsequently, the court proposed a compulsory mediation plan to reduce the airport duty-free rent by 25%, but the corporation refused to accept it. Shilla Duty Free, operated by Hotel Shilla, also filed for mediation in May for the same reasons, but the corporation rejected the request, leading Shilla Duty Free to decide to cease operations in the DF1 zone as of September 18.
According to their contracts, these operators must continue business for six months from the date they decide to return their concession rights. Shilla Duty Free will end operations on March 17 next year, and Shinsegae Duty Free will cease operations on April 28 next year. Industry insiders believe that Lotte Duty Free, the China Duty Free Group (CDFG), and Hyundai Department Store Duty Free, which currently operate duty-free businesses at Incheon Airport, may participate in additional bidding.
The Incheon Airport authorities stated, "In accordance with the contract, Shinsegae Duty Free must comply with the six-month mandatory business period even after contract termination," adding, "We will quickly select a successor through a prompt bidding process to ensure normal airport operations and prevent any inconvenience to passengers using the duty-free shops."
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