Lotte demands airport to cut rent
Lotte has officially asked the state-run Incheon International Airport Corp. (IIAC) to lower its rent for the company’s duty free shops at the airport, the retail giant said Wednesday.
The stores have experienced sluggish sales on the declining number of inbound Chinese tourists, following China’s retaliation against Korea’s deployment of a U.S. anti-missile system.
Korea’s top duty free operator urged the airport operator to answer its request and asked the IIAC for a meeting to consult on the matter in one week.
Lotte Duty Free said it seeks to avoid the worst-case scenario, which is closing down and withdrawing its stores from the airport.
Lotte threatened earlier this month to close its airport stores unless the IIAC accepts its demands.
The retail giant proposed the airport operator allow its duty free company to pay rent in accordance with its stores’ revenue.
The duty free stores, however, have had to pay higher rent to cover the minimum guarantee.
The state-run Korea Airport Corp. (KAC), which operates the country’s regional airports, has allowed Hanwha Galleria at Jeju International Airport to pay its rent in accordance with its sales.
Hanwha was considering withdrawing its duty free shops from the island’s airport last month.
Unlike the KAC, however, the IIAC has refused to cut the rent, saying the cost will be reduced after the opening of its second passenger terminal next year.
It also said the airport operator cannot cut the rent without approval from the government, particularly, the infrastructure ministry, which oversees IIAC management.
If the IIAC refuses the proposal, Lotte Duty Free is expected to suffer losses worth 200 billion won ($177 million) this year and 1.4 trillion won over the entire period of its five-year contract with the airport, the retailer said.
Lotte agreed to pay the IIAC 4 trillion won from September 2015 to August 2020, regardless of the stores’ performance, when it was selected as the duty free operator for the largest space at the airport in 2015.
“Through the rent cut, we hope to boost competitiveness in the nation’s tourism industry and achieve mutual growth with the IIAC,” a Lotte Duty Free official said.
In addition to Lotte, mid-size duty free operators have urged airport operators to cut rent, following the drastic decline in the number of Chinese tourists.
Chinese travelers had been the stores’ main customers until Beijing’s de facto ban on Chinese tour agencies from offering Korea’s tour packages.
Tourists from Japan and Southeast Asia could not make up for their absence.
Korea, as a result, suffered the biggest deficit in its travel services account in July.
Samick Duty Free recently filed a lawsuit against the IIAC over the rent issue.
City Plus, another duty free operator at Gimpo International Airport, also filed a petition with the Fair Trade Commission, blaming the KAC for allegedly overlooking the market potential of the airport.