November 24, 2024

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Incheon Airport Terminal 1 is crowded with passengers on Feb. 14. (Yonhap)

Competition for operational rights for lucrative duty-free shops at Incheon Airport is heating up, with China Duty Free Group, one of the largest duty-free retailers globally, joining the race.

According to industry sources on Monday, CDFG offered its bid to join the heated race after participating in a tender briefing session last month.

Competing head-on with Korean rivals such as Lotte, Shinsegae and Hotel Shilla, the Chinese duty-free giant aims to win as many as two business licenses to operate dozens of duty-free shops at the nation’s largest airport.

Industry insiders say CDFG, if selected, will lure away Chinese customers, who account for almost 90 percent of local duty-free sales.

“We are doing everything we can to be the largest business operator in Incheon Airport, but the Chinese company has stronger cash flow than us,” said a local duty-free shop official on condition of anonymity. “Of the total 100 points, 40 points will go to those willing to pay the highest rent to the airport.”

Evaluation criteria that measures future business plans accounts for 60 points. However, this hardly gives an upper hand to local duty-free shops because it does not take their past business experience in the airport into consideration, the official said.

When asked whether Incheon Airport might offer leniency for Korean companies, a spokesperson said, “We will only be focusing on the two evaluation criteria. Price bidding is important, but it is not the decisive factor to give the green light. We expect duty-free shops to bring in unique brands – not just luxury brands — and share plans on their corporate social responsibility activities.”

“We have been making efforts to reduce dependence on the costly Chinese resellers or Daigong. But considering the fierce competition with CDFG to attract Chinese customers, the future seems bleak,” said the duty-free official, citing that last month’s sales took a dive after local shops paid less in fees to travel agencies, who bring in the resellers.

As of January, monthly sales revenue of domestic duty-free shops plunged by 30 percent to 797.4 billion won ($603 million) from a year earlier, falling below the mark of 1 trillion won. The figure dropped 41 percent, compared to December last year.

In addition to CDFG, Switzerland-based Dufry is also expected to participate in the bidding process to operate small and medium-sized duty-free business at Incheon Airport.

The company looks to win a business license to run either six or eight shops spanning from cosmetics to boutiques. If selected, local contenders including Dongwha, the Grand and Kyung Bok Kung Duty-Free are likely to suffer, since their business largely rely on revenue generated at departure terminals rather than downtown or online shops, sources said.

The deadline for submitting business proposition and price bidding documents is 4 p.m. on Tuesday. Starting from July next year, a newly selected six or seven duty-free shops will operate within Incheon Airport for up to 10 years.

By Byun Hye-jin (hyejin2@heraldcorp.com)