NEWS/ANALYSIS


Incheon T1 non-liquor & tobacco exit underlines tough period for Lotte


February will likely go down as one of Lotte Duty Free’s most challenging months on record, with issues at Incheon compounded by trouble abroad, as Luke Barras-Hill reports.


O


n the 13 February, the South Korean retailer returned three of its Incheon


International Airport Terminal 1 concessions – excluding liquor and tobacco. This it said, was due to a combination of ‘burdening’ rent increases, the perpetual impact of the Terminal High Altitude Area Defense (THAAD) system missile crisis on declining Chinese consumer volumes, and the Korean government’s decision to award new downrown duty free licences. In a letter delivered to


Incheon International Airport Corporation (IIAC), Lotte confirmed its withdrawal from the key DF1 (P&C), DF5 (leathergoods and fashion) and DF8 (all items) lots it won in a competitive tender in 2015. It will continue operating its T1


liquor & tobacco concession to ‘minimise damage’ to IIAC and limit inconvenience for passengers, despite claiming it has racked up a deficit totalling KRW200bn ($186.5m) since 2016. Lotte said in a statement that the deficit would rise to KRW1.4tn ($1.3bn) should operations continue in the same manner to 2020. Once notice of its termination


is accepted by IIAC in March [TRBusiness was still waiting to receive further detail on the exact process timetable and further comment from IIAC at press time]Lotte will operate for a further 120 days pursuant to the contract before exiting. Lotte has previously hinted at


‘seriously’ pulling its ‘entire’ business at Incheon – having lodged a formal application for rent relief and a subsequent ‘unfair trade practice report’ to South Korea’s Fair Trade Commission in which it accused IIAC of creating conditions that ‘disadvantaged’ operations.


MARCH 2018


However, recent signs have pointed towards a thawing in relations between Beijing and Seoul over the aformentioned THAAD.


IIAC will seek operator IIAC has already confirmed it will select another operator to occupy the vacated lots. In the meantime, the Group has more pressing issues to deal with. On the same day as the Incheon


decision, Lotte Chairman Shin Dong-bin was sentenced to two- and-a-half years in prison for bribery. Dong-bin was said to have offered KRW7bn ($6.5bn) to former President Park Geun-Hye’s friend and advisor Choi Soon-sil in exchange for special favours, which included a licence to open a duty free shop. He is understood to have appealed the decision. On an entirely separate – but


important – note, the long-running battle between DFS Group and Lotte over the latter’s Guam concession status continues to unfold. Shortly before TRBusiness went to


press, DFS filed a motion requesting that the Guam Superior Court reverses its decision to allow Lotte to continue operating at Antonio B. Won Pat International Airport. The development is a more recent move in a saga dating back to 2013. In February, Guam’s Superior Court voided the Request for Proposal decision and set aside Lotte’s contract, which it secured in 2012. Guam Airport Authority was deemed to have ‘violated’ Guam procurement law through claims Lotte Guam was allowed to alter its ‘sealed bid’ after the deadline. Lotte stated at the time the RFP decision was ‘voided’ that it was “based on a technical argument involving DFS and the airport”. It has vowed to continue operating until a final result.


Staff at Lotte Duty Free's withdrawn Incheon T1 concessions could relocate to other downtown locations (pictured here is Lotte's flagship downtown store in Seoul).


DFS states in its motion that the


court “inadvertently committed clear errors in four aspects” resulting in ‘substantial prejudice’ to DFS. Crucially, the motion claims


the court “effectively nullified the statutory relief it purported to grant by reinstating the voided RFP and concession agreement”, thus allowing Lotte to continue operating at the airport as a speciality retailer concessionaire until a new operator is selected. Commenting to TRBusiness, a Lotte


spokesperson reiterated that the issue lay with DFS and the airport and that the final result was yet to be decided. “All we can add is that there should


be no circumstance in which an operator is unfairly disadvantaged,” the spokesperson made clear. «


Lotte will continue operating its T1 liquor & tobacco concession to ‘minimise damage’ to IIAC and limit inconvenience for passengers.


TRBusiness TRBUSINESS 17


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