Incheon International Airport says it expects annual duty free sales to reach US$2billion once again in 2017 following the complete remodelling of its 2,753square meter luxury boutique street, Airstar Avenue, at the central area of Terminal 1. Meanwhile the airport expects to open new T2 shops at the end of 2017 following a long and controversial tender process.
The remodelled area which occupies approximately 16 percent of the airport’s duty free concession space (17,074 square meter), includes these 25 top luxury boutiques: Balenciaga, Bally, Bottega Veneta, Burberry, Bvlgari, Cartier, Celine, Coach, Fendi, Ferragamo, Gucci, Longchamp, Louis Vuitton, Marc Jacobs, Miu Miu, Montblanc, Moncler, Omega, Prada, Rolex, Saint Laurent, Tiffany, Tod’s, Tory Burch and Tumi.
The Saint Laurent, Balenciaga and Moncler stores were the most recent additions to the revamped shopping street.
Bum-Ho Kim, IIAC Executive Director of Commercial Marketing, made these comments: “We are pleased to announce the completion of the main terminal’s renovation. Last year, while the area was partially being revamped, the central boutique managed to deliver robust sales of US$224million.
This sales amount covers approximately 11 percent of the total annual sales (US$2billion). As we have now completed the renewal process successfully, we are expecting to provide efficient customer experiences beyond passengers’ expectations, and aim to hit US$2billion sales once more.
Turning to Terminal 2, he added: “Incheon Airport is currently putting its utmost efforts to successfully open duty free shops in Terminal 2, by the end of 2017. “Along with T1 duty free, we will do our best to create a place of which can deliver unforgettable, delightful airport shopping experiences and satisfaction for the passengers visiting our airport.”
Lotte walked away with the L&T concession contract – awarded in May this year – and Shilla took P&C, while the terminal’s fashion tender was rebid.
The three small and medium enterprise (SME) contracts will be operated by SM Duty Free (DF4), Entas Duty Free (DF5) and CityPlus (DF6), according to an announcement from the Korea Customs Service (KCS).
Kim Bum Ho, Deputy Executive Director of IIAC’s Commercial Marketing Group, said this morning that although Incheon Airport has planned to issue its T2 tender on schedule [in the first week of December], there could be a delay if the debate surrounding a change in e-commerce regulation – among a few other issues – continues.
Operators at South Korea’s Incheon International Airport (ICN) are currently not permitted to offer online duty free shopping due to regulation that stipulates that downtown DF operators alone command this privilege.
But Kim is all too aware of the increasing importance of e-commerce in South Korea, confirming that online sales growth continues to soar. “In South Korea the increased rate of online duty free shopping is now almost 50%-60% year-on-year…it’s so huge.”
Kim says that many local residents now prefer to only shop online. “So if you go to the downtown duty free store at this hour (evening in South Korea) you will only see Chinese people; no Koreans, no local people. Local people like to shop online. It’s such a big trend.”
In order to attract the most competitive bids (and retailers), Kim is trying to get the current e-commerce regulation for airport duty free operators changed…but it’s not been easy.
A large jewellery and watches counter at Incheon
“The duty free sales do not match the passenger growth rate unfortunately, but we think at this moment the duty free business has increased by 15% compared to last year,” says Kim.
“We are now talking…it is one of the issues we need to talk with the government about…So we are trying to [eliminate] the barriers to have e-commerce for airport duty free operators. I do think we can solve the problem for T2 operators…We have officially asked the Korean Customs office to permit the e-commerce business for airport duty free operators.”
Kim reveals that IIAC should find out if this is possible in two weeks time. In fact, he plans to write this into the terms of the T2 tender, if negotiations with the Korean Customs Service (KCS) go to plan.
TERMINAL 2 TERMS
“I think it will be determined in two weeks. It’s one of the conditions for the bidding. So yes we are planning to open the tender in early December, but we have to negotiate with the Korean Government Customs office before it opens…if it is takes longer we’ll need more weeks before we open. Anyway, our target date is early in December.”
Kim confirms that most local Korean operators such as Lotte, Shilla, Shinsegae, Hanwha and Doosan are interested in the Terminal 2 tender. Regarding the international operators he admits that two have already approached him, but he cannot reveal the company names at this stage.
T2 TO OPEN IN LATE 2017
Of course once the results have been announced, the retailers can begin to fit out the stores ready to commence trading in late 2017 when the new $5bn terminal opens.
“T2 will be opened late in 2017,” confirms Kim. “We spent almost $5bn on constructing it. It’s a totally new and unique place…we have centralised the duty free shops more…and it will be a more market and customer-oriented place. We can provide a good business environment.”
This year Incheon Airport says it has witnessed a very healthy increase in passengers of around 19%, however unfortunately duty free sales have not kept pace, as Kim concedes.
“The duty free sales do not match the passenger growth rate unfortunately, but we think at this moment the duty free business has increased by 15% compared to last year.”
Of course, Kim says that it’s difficult to make a direct comparison with last year, as the airport and the whole country suffered from the impact of MERS.
“It’s not best to compare directly with last year, but when we compare with two years ago (2014) we had about 10% increase in duty free sales.”
This year Incheon Airport says it has witnessed a very healthy increase in passengers of around 19%.
$2BN SALES TARGET STILL IN SIGHT
Kim also strongly believes that the airport can still achieve the $2bn sales total it predicted earlier this year. “We can hit $2bn again. Last year in 2015, we couldn’t because of the MERS…but this year in 2016 I think we can hit $2bn again.”
As the world’s biggest duty free market, many are interested to see what sort of sales South Korea can register in 2016. As reported, duty free sales rose +36% to $7.9bn in the first nine months of this year.
Kim gave us his updated forecast this morning: “I think the duty free business can hit about $9bn or $10bn in South Korea this year, so there is amazing growth actually.”
However, Kim also admits that for the last few months – maybe even as early as April this year – the growth in the number of Chinese inbound visitors has decreased, for which Kim says ‘there are many reasons’.
CHINESE INBOUND GROWTH SLOWS
One of these could be the new luxury goods import tax introduced by the Chinese Government earlier this year in a bid to protect home-grown businesses. Of course political tension could also be a factor.
[There were earlier concerns that the South Korean Government’s plan to plug into the US’ Terminal High-Altitude Air Defence (THAAD) system by the end of 2017 might cause a drop off in Chinese visitors, considering Beijing’s stiff opposition to the deployment].
LOTTE WILL BID AGGRESIVELY
“Duty free operators, including Lotte and Shilla are worrying about the Chinese changes…they spend less and they visit less.”
Kim believes this is more of a problem for the downtown duty free business and maintains that ‘the airport business is very stable compared to the downtown business’.
“Incheon is the gateway to South Korea and almost all the Chinese visitors have to come through Incheon Airport. It’s the national gateway…so it’s very stable, though their spending per passenger is now decreasing.”
Seoul’s Incheon Airport not only tops the Asia-Pacific rankings for retail spending – it has the highest turnover of any airport in the world.
Which is remarkable given it ranks 10th in the region by passenger numbers, according to Airports Council International data, with 49,281,220 people passing through in 2015, compared to more than 90 million in Beijing and 55 million in Singapore.
Asian airports dominate the world top 100 airport retail rankings measuring shopper spending, according to data collected by Swedish company Generation Research for 2015. While the tables lists the world’s top 100 and Asia-Pacific’s top 50, it does not provide any actual figures for spending. Sales from around the world were converted into US dollar value.
In the global airport retail rankings, Incheon leads Dubai Airport, with Singapore Changi third.
In the Asia rankings, published below, Singapore leads Bangkok – something of a surprise third-place getter given it is generally regarded as an expensive airport for ‘duty-free’ goods, and Pudong, Shanghai in fourth. Hong Kong makes it only fifth on the table, despite its huge passenger throughput and broad retail offer.
Tokyo Narita, Beijing Capital, Taipei Taoyuan, Cheju and Osaka Kansai complete the top 10.
On the global rankings, those Asian airports take fifth, sixth, seventh, eighth, 10th, 12th and 14th places.
London Heathrow takes fourth place, Paris de Gaulle ninth, and Frankfurt 13th.
