A new bidding war has started among retail giants over business licenses to operate duty-free stores at Incheon International Airport, the main gateway to Korea.

Lotte and Shilla currently dominate the business.

On Thursday, the Seoul Customs Service made a public notice about the opening of a bid, as the current business contracts expire in February. Since 2000, Incheon International Airport Corp., the airport operator, has renewed duty-free business licenses every five years.

Sales at duty-free shops have risen in line with the expansion of the airport over the past decade. In 2013, duty-free sales totaled about 1.94 trillion won ($1.8 billion). Lotte Duty Free and Shilla Duty Free made almost 90 percent of the sales.

During the bidding, the airport plans to pick at least three major duty-free shop operators, while allocating some separate space to small- and medium-sized companies. 

Industry watchers predicted that with Lotte and Shilla likely to renew their business contracts, newcomers like Shinsegae and Hanwha would be gauging the profitability of the business, which involves heavy commission fees.

“It is crucial for duty-free shop operators to run shops at Incheon International Airport to elevate their brand image. Shinsegae, the nation’s largest retailer, will make all-out efforts to win the bid,” said an industry source on condition of anonymity. Shinsegae entered the duty-free business in 2012 when it acquired Paradise Duty Free.

Hanwha Galleria, which runs a duty-free store in Jeju International Airport, is expected to be another strong contender.

Lotte and Shilla pull in some 30 percent of their duty-free sales in Incheon. Adding to this profitability, running duty-free shops at Incheon Airport can give them leverage in negotiations with European fashion houses.

In 2012, Shilla, an affiliate of Samsung, opened Louis Vuitton’s first duty-free store in Incheon Airport. After the highly publicized opening, the luxury brand has entered other duty-free markets.

Smaller players who operate shops at domestic airports only are also pinning high hopes on the new bidding, as they have more opportunities to secure lucrative business at the airport.

It remains to be seen, however, whether small- and medium-sized companies will be able to survive in the highly competitive market dominated by luxury goods sales.

“Considering most of duty-free sales come from luxury goods, smaller firms might face difficulties in sourcing new products that could appeal to foreign travelers,” said an airport official close to the matter.

By Lee Ji-yoon (jylee@heraldcorp.com)