Shilla Duty Free has declared its intention to halt operations at its DF1 duty-free store at Incheon International Airport in March. This follows the store’s excessive losses and the concession’s business value falling below its liquidation value.
The DF1 concession recorded a revenue of KRW$429.2 billion (US$312 million) in the past fiscal year, contributing 10.9 per cent to Shilla’s overall sales.
The company commented on the changing climate of the duty-free market, since inking the contract for the duty-free store at Incheon International Airport in 2023. It noted the rapid shifts in consumer behavior and diminished buying power. The company has approached the Incheon International Airport Corporation to adjust the rent, but the request was turned down.
This resolution was approved by the board on September 18 and was revealed in a Korea Exchange filing.
Shilla anticipates a short-term drop in sales as a consequence of the exit. However, the company maintains an optimistic outlook for a more robust financial performance in the medium to long term.
The company stated, “We believe it is crucial to enhance our financial structure and increase corporate and shareholder value.” Despite the ongoing challenges in the duty-free industry, the company pledged to maximize efforts to boost profitability.
In addition to Shilla, Shinsegae Duty Free has also relinquished its business rights at Incheon. Both retailers had sought to reduce their rent by up to 40 per cent on their perfume, cosmetics, liquor, and tobacco concessions at Terminals 1 and 2. However, the Incheon International Airport Corporation (IIAC) declined these requests, asserting that rental terms were established in the original bids and could not be altered beyond the stipulations outlined by law.
Why is Shilla Duty Free suspending its operations at Incheon International Airport?
Shilla Duty Free has cited “excessive losses” and a business value now lower than its liquidation value as reasons for its decision to suspend operations.
What impact will this decision have on Shilla Duty Free’s sales?
While the company expects a temporary dip in sales due to the closure, it foresees a stronger overall financial performance over the medium to long term.
Have other duty-free stores at Incheon International Airport made similar moves?
Yes, aside from Shilla, Shinsegae Duty Free has also given up its business rights at Incheon. Both companies unsuccessfully attempted to negotiate a reduction in rent.
