SOUTH KOREA. CityPlus Duty Free (City Duty Free) has written to Incheon International Airport Corporation (IIAC) warning them of possible monopoly issues if the airport company allocates its vacant perfumes and cosmetics in Terminal 1 to The Shilla Duty Free.
As reported, the IIIAC auctioned the three T1 dealerships that Lotte Duty Free resigned in February. But he restructured them into just two contracts (see table immediately below). And this is where the crux of the complaint of the player of small and medium enterprises (SMEs) CityPlus lies.
Lotte has resigned from its DF1 (perfumes & cosmetics), DF5 (leather goods & fashion) and DF8 (various categories). The concessions, which were awarded to Lotte Duty Free in early 2015 after a series of successful offers, were to run from September 2015 to August 2020.
Lotte Duty Free cited the excessive cost of contracts, not having renegotiated its terms. The retail giant claimed that its Incheon stores (hit by the Chinese THAAD-linked tourism slump, growing competition in the city center and excessive airport fees) had recorded losses of 200 billion KW ($ 184 million) since 2016.
The contracts would run a deficit of 1.4 trillion KW ($ 1.3 billion), the retailer said, if stores continued to operate for the full term in 2020.
The new tender combines DF1 and DF8 in one package. DF5 remains a special opportunity. By combining DF1, which has higher spending per passenger (SPP) and sales volume, with the lower SPP and sales potential of DF8, the IIAC hoped to create a more attractive proposition to bidders.
However, CityPlus Free senior managing director Allen Hong told the Moodie Davitt Report that the overhauled contract structure was unfair to small retailers and could hurt the consumer’s proposal. âWe, CityPlus Duty Free, sent a document to the IIAC which warned of a possible monopoly for cosmetics / perfumes at Incheon Airport duty free shops if the most likely historic retailer (Shilla) wins DF1 for P&C, âhe said.
Hong noted that since 2001, the IIAC has always offered double concessions for the all-important category of perfumes and cosmetics. But if Shilla, which already operates DF2 (beauty products), gets the new DF1 combined contract, its market share for the category will be 90% or more in T1 – and 95% for T1 and T2 combined.
This situation would be an “absolute category monopoly,” Hong said. Such a situation would cause “serious damage” to the welfare of consumers and threaten the survival of smaller competitors, he said.
âWe have cautioned the IIAC to investigate this issue and prevent the retailer [Shilla] to win the DF1 concession, âsaid Hong. âIf the IIAC does not propose the appropriate measures to prevent a monopoly, we are prepared to take this matter to the Fair Trade Commission. “
Disagreement with the CityPlus claim
While The Shilla Duty Free declined to comment, the company will certainly disagree with CityPlus’ claim. The Fair Trade Commission will have no problem with the proposed structure, believe sources close to the company. The company could reasonably point to many other international airports that have only one retailer for a category (or indeed for all categories).
However, the Shilla Duty Free is unlikely to be the only bidder. Shinsegae Duty Free and industry newcomer Hyundai Duty Free (which is preparing to open a store in downtown Gangnam, Seoul later this year), have both expressed interest in the Moodie Davitt report.
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