SOUTH KOREA: SME OPERATORS
It’s survival of the fittest for SMEs in S. Korea TR market
Covid-19 is just the latest in a series of problems to bedevil South Korea’s small and medium- sized duty free operators over the past few years, including intense domestic competition, high airport concession fees and a failure to achieve targeted sales. David Hayes reports.
Airport’s small operators, City Plus Duty Free and Grand Duty Free, have been given a 50% MAG reduction for six months; medium and large operators have been given a 20% MAG reduction. “Companies with revenue
over US$200 million annually are considered medium enterprises, so SM Duty Free and Entas Duty Free only got a 20% reduction SM Duty Free’s withdrawal from
the bidding was rather fortuitous for Grand Duty Free as its bid for the DF9 licence was successful. This was certainly helped by the 50% MAG discount it received on its T1 perfume and cosmetics store.
Above: SM Duty Free withdrew its bids for the DF8 and DF9 ‘All Items’ licences as part of Incheon Airport’s T1 duty free tender.
T
he failure of some small and medium-sized enterprise (SME) operators to meet
sales targets at their downtown stores had already weakened financial positions before the coronavirus (Covid-19) outbreak. However, since the end of January
duty free sales have plummeted for every South Korean duty free retailer, throwing doubt on whether all SME operators will be able to survive the next six months. In March, SM Duty Free
announced its decision to close its Seoul Insadong store at the end of September 2020 and said it would also be returning its downtown duty free licence. It blamed severe competition in the
“Incheon Airport’s small operators, City Plus Duty Free and Grand Duty Free, have been given a 50% MAG reduction for six months; medium and large operators have been given a 20% MAG reduction.”
Korea duty free source 74 TRBUSINESS
downtown duty free market and high Incheon International Airport shop concession fees for causing financial difficulties. News of SM Duty Free’s downtown
store closure followed soon after the company announced its decision to withdraw bids for Incheon Airport’s DF8 and DF9 ‘All Items’ licences as part of the Terminal 1 tender. The announcement effectively
signals SM’s resignation from operating the DF9 concession it currently holds until 31 August. SM Duty Free will instead focus on
its other Incheon Airport operations; two T2 mixed category shops and two T1 arrivals duty free outlets. “The DF8 and DF9 MAG was too
high, so SM Duty Free dropped out in protest,” comments an informed source. “When the Covid-19 crisis
escalated, operators asked Incheon International Airport Corporation (IIAC) to reduce their MAG to a reasonable level. SME companies asked for a 70% to 90% reduction to reflect the reduction in sales.” The source continues: “Incheon
Dongwha future ‘uncertain’ SM Duty Free is the second SME operator to announce its withdrawal from the Seoul downtown duty free market during the past 12 months. Last year, City Plus Duty Free,
which trades as City Duty Free, was forced to close its downtown store in western Seoul’s Shinchon district and returned its licence following legal problems with the shopping centre landlord. South Korea’s National Rail
Corporation had leased the third floor store to Tour Global, which then sub-leased to City Plus, resulting in the operator losing its store tenancy. This followed an earlier set back
in 2018 when City Plus was forced to cancel its Gimpo International Airport liquor and tobacco departure shop licence due to financial problems caused by the high concession fee it had agreed. Since then, City Plus has focused
on its duty free operations at Incheon Airport where the company recently submitted the (now surrendered) winning bid to retain its Incheon T1 DF9 mixed goods concession.
MAY 2020
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