Duty-free at Incheon goes from 'golden goose' to albatross for Shilla, Shinsegae

Travelers move through the duty-free zone at Incheon International Airport on July 23. [YONHAP]

 
Once a cash cow for Incheon International Airport, its duty-free shops are now bleeding millions each month as changing travel habits and soaring rent turn the “golden goose” into an albatross.
 
Recent passenger numbers have rebounded, but far fewer visitors are actually shopping. Major operators, burdened by high rent, have asked the airport operator to cut lease fees — but a deal looks unlikely. Industry watchers say the duty-free business model needs a complete overhaul to reflect changing tourism patterns.
 

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The Incheon International Airport Corporation (IIAC) announced Tuesday that it would not accept a court-mediated proposal related to rent reduction requests filed in April and May by Shilla Duty Free and Shinsegae Duty Free. The corporation also said it would not attend the second mediation session scheduled for Aug. 28.
 
“The current lease fees were the amounts Shilla and Shinsegae themselves offered in order to win 10-year operating rights,” the IIAC said. “To demand reductions just two years into the contract is an attempt to evade the intent of the bidding process and corporate management responsibility.”
 
The corporation added that, according to legal advice, agreeing to a rent cut under the current circumstances could amount to a breach of trust or violate the Act on the Aggravated Punishment of Specific Economic Crimes.
 

Travelers move through the duty-free zone at Incheon International Airport’s Terminal 1 on the afternoon of Dec. 16, 2024. [NEWS1]

 
The dispute stems from a change in the rent calculation method during the 2023 duty-free bidding. Expecting sales to rise with the post-pandemic travel rebound, the IIAC switched from a fixed rent to a variable rent based on the number of departing passengers.
 
Shilla bid 8,987 won ($6) per passenger and Shinsegae 9,020 won to win 10-year contracts. But as passenger volumes rose, so did the rent — without a matching increase in sales — prompting both companies to request a 40 percent cut.
 
A key factor is the shift in shopping habits. Foreign visitors now flock to retailers like Olive Young and Daiso rather than airport duty-free shops. Chinese resellers, known as daigong, once major customers, have dwindled sharply since new restrictions on shipping duty-free goods overseas took effect in February 2024.
 
Outbound Korean travelers increasingly turn to online duty-free sites or foreign e-commerce platforms for better prices.
 
As a result, duty-free operators’ performance has weakened. According to the Korea Duty Free Association, domestic duty-free sales totaled $10.4 billion in 2024, down for the third consecutive year in dollar terms. Shilla Duty Free posted an operating loss of 69.7 billion won last year, while Shinsegae DF, which runs Shinsegae Duty Free, recorded a 35.9 billion won loss.
 
The situation is worse at Incheon Airport. Industry sources say Shilla and Shinsegae’s Incheon branches are losing 5 billion to 6 billion won a month. Both companies say that without a rent adjustment, they may withdraw from the airport altogether, even if it means paying a penalty of about 200 billion won.
 

People shop at an Olive Young store in Seoul on March 12. [YONHAP]

 
Meanwhile, rivals are watching closely. Lotte Duty Free, which hopes to return to Incheon Airport, could secure a contract at roughly 40 percent less than 2023 prices if a rebid is held.
 
Lotte posted a 15.3 billion won operating profit in duty-free for the first quarter this year — its first profit since the second quarter of 2023 — after terminating unprofitable deals with Chinese resellers. Its Gimpo Airport store pays rent based on sales, not passenger numbers, avoiding the current crisis.
 
Hyundai Duty Free, also at Incheon Airport, is likewise unaffected. When it opened a luxury boutique zone in 2023, parent company Hyundai Department Store bid just 1,109 won per passenger — about one-eighth of Shilla and Shinsegae’s rates.
 
Industry experts say the sector must adapt to new tourism trends. With small group and individual travel replacing package tours, and younger foreign visitors favoring urban sightseeing, duty-free operators need to rethink their approach.
 
A February report by Samil PwC Business Research advised pursuing economies of scale through joint ventures between downtown duty-free stores and exclusive product category rights at airport duty-free zones.
 
“With tourism patterns changing, the traditional duty-free business model is no longer valid. Operators should consider focusing on value-for-money products rather than just high-end luxury goods,” said Kim Dae-jong, a business professor at Sejong University.


This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom staff.
BY KIM KYUNG-MI [shin.minhee@joongang.co.kr]