[Exclusive] Shinsegae Duty Free Faces Series of Defeats in Rental Refund Lawsuits Against Incheon Airport

Claimed Rent Reduction After COVID-19

Court Dismisses 51.7 Billion Won Refund Request

It has been confirmed that Shinsegae Duty Free lost consecutive lawsuits seeking the return of rental fees at Incheon International Airport. The duty-free industry has been repeatedly withdrawing from and re-bidding on Incheon Airport shops, unable to shoulder exorbitant rental fees, with legal disputes taking place in the process.

According to sources in the retail and legal sectors on the 15th, the Seoul Central District Court’s Civil Division 34 delivered a verdict on August 14, ruling against Shinsegae DF, the operator of Shinsegae Duty Free, in a lawsuit against Incheon International Airport Corporation seeking the return of 51.7 billion won in unjust enrichment. The court dismissed all claims and ordered Shinsegae DF to cover legal expenses.

Sales Decline Due to COVID-19, Company Demands 30% Rental Refund

Previously, Shinsegae Duty Free was selected as the operator for the duty-free zones (DF1 and DF5) at Incheon Airport Terminal 1, which Lotte Duty Free gave up early, following a re-bid in 2018. The operation period was from August 2018 to July 2023. Lotte Duty Free had withdrawn after struggling to pay fixed rent amid worsening business, as the number of Chinese tourists sharply declined following China’s THAAD retaliation.

During the bid, Shinsegae Duty Free proposed an annual rent of 276.2 billion won for DF1 (cosmetics and perfumes), 60.8 billion won for DF5 (fashion, leather goods, luxury brands), totaling 337 billion won. This figure was about 25% higher than competitor Hotel Shilla’s bid of 269.8 billion won. From the second year onward, rent would be adjusted by half the change in passenger traffic from the previous year, with the change capped at 9% per year.

However, as the COVID-19 pandemic spread in 2020 and borders closed, airport passenger traffic plummeted. Starting in March of that year, Incheon International Airport Corporation granted rental reductions or exemptions. If passenger numbers fell below 80% of the same month in 2019, operators paid a revenue-linked commission instead of the contract rent. This relief policy lasted for 2 years and 10 months, until the end of 2022.

Accordingly, in December 2022, Shinsegae Duty Free requested the airport corporation to apply a revenue-linked commission until passenger numbers recovered to 80% of pre-COVID levels. In January the following year, it also delivered a content-certified letter invoking its right to demand a rent reduction under the Civil Act. This right allows tenants to request a lower rent when economic circumstances change after a contract is signed, making the existing rent inappropriate.

On this basis, Shinsegae DF argued that its rent from January to July 2023 should have been 30% lower. The rent paid during this period was 24.6 billion won per month, totaling 172.4 billion won. The company claimed it overpaid by 51.7 billion won, or 30%, and demanded the excess be returned.

"Sluggish Sales Cannot Be Attributed Solely to COVID-19"

However, the court did not accept these arguments. The reasoning was that, after quarantine and flight restrictions for international arrivals were lifted in 2022, passenger numbers at Incheon Airport rapidly recovered. In fact, the number of departing international passengers at Terminal 1 from January to July 2023 totaled 10.73 million, or 72.2% of the figure from the same period in 2019. In June 2023, the recovery rate reached 80.2%.

Sales for DF5, operated by Shinsegae Duty Free, totaled 109 billion won from January to July 2023, recovering to 93.6% of 2019 levels. Between April and June that year, sales even exceeded pre-pandemic figures. In contrast, sales for DF1 were 111.2 billion won, just 37.2% of 2019 sales.

The court found that the underperformance of DF1 could not be explained by COVID-19 alone, because per-passenger sales at this location were just 42.6-56.5% of 2019 levels. This meant that, although passenger numbers had returned, each customer spent only about half as much as they did before COVID-19. The court noted, “Multiple factors, including Shinsegae DF’s business structure, changes in Chinese tourist consumption patterns, and fluctuations in exchange rates may have contributed to the poor performance of DF1. Therefore, it is difficult to attribute the decline solely to COVID-19.”

Just one day earlier, on August 13, Shinsegae DF also lost a separate lawsuit against the airport corporation seeking a rental refund of 12.1 billion won. The company argued that the actual usable space at part of its newly secured DF2 and DF4 stores in 2023 was smaller than contracted due to temporary partitions, but the court rejected this claim. The court cited that the corporation had notified in advance that store sizes may change. Moreover, since rental fees were calculated by multiplying the ‘rate per passenger’ by the ‘number of monthly passengers’, the court found that store size and rental fees were unrelated.

The total amount claimed in the two lawsuits lost by Shinsegae DF over two consecutive days is 63.8 billion won. A Shinsegae DF representative stated, “We will decide how to respond after reviewing the court’s written decision.”

This content was produced with the assistance of AI translation services.