Duty free operators reluctant to bet on Vuitton, Chanel

By Park Jae-hyuk

Louis Vuitton and Chanel may not be attractive enough for Korean retailers to bid for a fashion accessories zone of new duty free stores in the second passenger terminal at Incheon International Airport, which will open in October.

Last Thursday, none of four conglomerates ― Lotte, Shilla, Shinsegae and Hanwha ― applied for the section that deals with foreign luxury brands, while they submitted bids for cosmetics, liquor and cigarette sections, industry officials said Monday.

Some attributed the failure in bidding to Incheon International Airport Corp.’s (IIAC) “obsession with foreign luxury brands.”

Desiring to accommodate the global top 20 luxury brands including Louis Vuitton and Chanel, the IIAC demanded the candidates obtain commitments from foreign luxury brands that they will open shops in the new duty free store.

Foreign luxury brands, however, are not popular in airport duty free shops in general, because customers tend to buy low-priced goods in airports. High-priced luxury bags and shoes are typically preferred at downtown duty free stores instead.

Also, a duty free operator cannot do anything but manage luxury brand shops, while the IIAC is the only entity making direct contracts with the brands.

The operators therefore were expected to pay at least 64.6 billion won ($56 million) in annual rent without much profit.

Duty free operators have endured the burden which they believed would eventually help enhance their images and awareness among customers.

But the row with China over the deployment of a U.S. anti-missile defense system changed the situation.

Due to the fast decline of Chinese tourists and the resultant slump in sales and profits, the Korea Duty Free Association is demanding the airport cut rent for the duty free outlets there.

The IIAC said it will continue recruiting operators for the fashion accessories zone until next Monday, but critics doubt whether the airport can attract retailers in this time.

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