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| People stroll alongside the duty free store zone at Incheon International Airport, Wednesday. Lotte Group has won the rights to have the biggest portion of the zone under its control for the next five years. But its exorbitant bidding price has triggered concerns that the company may fall prey to a "winner's curse." / Yonhap |
By Park Si-soo
Lotte Group's "exorbitant" bid to win the largest amount of duty free space at Incheon International Airport (ICN) is triggering concerns that it may fall victim to a "winner's curse."
The company is expected to benefit from Chinese travelers' lavish spending at domestic airport duty free stores, including those at ICN, the largest airport in Korea.
However, concerns are mounting that Lotte's bidding price was so high that its duty free business at ICN will face difficulties making money.
The two other winners ― Hotel Shilla and Shinsegae Group ― are expected to face similar problems for the same reason.
Experts have expressed concerns that the overheated bidding will end up forcing the companies to sell products at higher prices, passing on the costs to customers.
Lotte will pay a staggering 3.6 trillion won in return for having the rights to run Lotte duty free stores at four out of eight sections at ICN for five years. This means it needs to make 720 billion won annually, nearly 2.5 times higher than the bidding price Lotte paid last time out.
Hotel Shilla has secured the second biggest portion with three sections, paying 1.32 trillion won for five years or 260 billion won annually. Shinsegae Group will have one section, paying 380 billion won for five years or 76 billion won annually.
"It will take one or two years to know whether the bidding conditions were good or bad," a Lotte official said. He said the company will come up with various marketing and promotional plans to maximize its sales at ICN.
Hotel Shilla appears at the biggest disadvantage after the bidding process because it will have less space under the new deal. The company plans to make up for a possible sales drop caused by reduced store size with more active marketing and promotion of highly profitable products such as tobacco and alcoholic beverages.
Many retailers here have been looking to make inroads into the lucrative duty free business to capitalize on the surging number of Chinese and other foreign tourists. Many Koreans that are reluctant to open their wallets often go on a buying spree at duty free shops when traveling overseas.
According to the Korea Tourism Organization (KTO), the number of inbound foreign tourists reached 14 million in 2014, up 16 percent from a year earlier. Of that 14 million, 6.1 million were Chinese, up 40 percent.
Duty free operators here earned a combined 8.3 trillion won in revenue last year, up 21 percent from 2013, thanks largely to visitors from China, according to the customs agency.
The KTO said about 15 million Chinese will visit Korea in 2020, spending a combined 30.5 trillion won here.
