Conglomerate accuses operator of unfair practices
By Lee Hyo-sik
Lotte Duty Free has filed a complaint against Incheon International Airport Corp. (IIAC), calling on the antitrust agency to correct what it calls "unfair business practices" by the airport operator.
Korea's largest duty free store chain said Monday it decided to ask the Fair Trade Commission (FTC) to look into a five-year lease contract it signed with the IIAC as to whether it violates the nation's Fair Trade Act or not.
The move comes amid the ongoing dispute over rent Lotte has to pay to the IIAC.
Lotte is demanding the operator slash rent for its stores, citing plunging sales as a result of the declining number of Chinese visitors. However, IIAC has refused to accept this, citing the terms of the contract.
The number of tourists from the mainland has dropped sharply since March when Korea officially decided to deploy a Terminal High Altitude Area Defense (THAAD) battery, which has invited strong protest from the Chinese government. Chinese authorities have virtually banned its people from traveling to Korea in retaliation.
Lotte and IIAC have held four rounds of meetings since September but failed to narrow their differences.
"IIAC has violated the antitrust law by forcing duty free operators to agree to unfavorable terms," a Lotte Duty Free official said. "The IIAC contract bans duty free stores from requesting to renegotiate the terms of their contracts, despite a sales plunge or other changes in business conditions. This clearly violates the law."
The airport operator also demands excessive penalties from those canceling lease contracts, the official said.
"Under the contract, we cannot revoke it unless at least two and a half years have passed. We are also obliged to operate for at least four months even after IIAC approves the cancellation," he said. "We also have to pay 25 percent of the rent in the final year of 2020 as a penalty, which amounts to nearly 300 billion won. All these terms are clearly in violation of the Fair Trade Act."
But in response, IIAC said Lotte's falling sales in recent months have little to do with the THAAD backlash.
"We believe Lotte's struggles have much to do with its excessive bid for the right to operate duty free shops at the Incheon airport," an IIAC official said. "The lease contract we signed with Lotte and other stores was already reviewed by the FTC and if the agency wants to look into the case, we will faithfully cooperate with it."
Lotte secured the right to operate duty free shops at the Incheon airport from September 2015 to August 2020. In return, it agreed to pay 4.1 trillion won ($3.6 billion) in rent during the five-year period, regardless of business conditions, thinking that Chinese tourists would continue to flood Asia's fourth-largest economy.
The company paid 1.01 trillion won from 2015 to 2016. This year, it has to pay 770 billion won and the remaining 2.32 trillion won from 2019 to 2020.
In the second quarter of 2017, Lotte Duty Free posted a 29.7 billion won operating loss, the first loss in 14 years.
By Lee Hyo-sik
Lotte Duty Free has filed a complaint against Incheon International Airport Corp. (IIAC), calling on the antitrust agency to correct what it calls "unfair business practices" by the airport operator.
Korea's largest duty free store chain said Monday it decided to ask the Fair Trade Commission (FTC) to look into a five-year lease contract it signed with the IIAC as to whether it violates the nation's Fair Trade Act or not.
The move comes amid the ongoing dispute over rent Lotte has to pay to the IIAC.
Lotte is demanding the operator slash rent for its stores, citing plunging sales as a result of the declining number of Chinese visitors. However, IIAC has refused to accept this, citing the terms of the contract.
The number of tourists from the mainland has dropped sharply since March when Korea officially decided to deploy a Terminal High Altitude Area Defense (THAAD) battery, which has invited strong protest from the Chinese government. Chinese authorities have virtually banned its people from traveling to Korea in retaliation.
Lotte and IIAC have held four rounds of meetings since September but failed to narrow their differences.
"IIAC has violated the antitrust law by forcing duty free operators to agree to unfavorable terms," a Lotte Duty Free official said. "The IIAC contract bans duty free stores from requesting to renegotiate the terms of their contracts, despite a sales plunge or other changes in business conditions. This clearly violates the law."
The airport operator also demands excessive penalties from those canceling lease contracts, the official said.
"Under the contract, we cannot revoke it unless at least two and a half years have passed. We are also obliged to operate for at least four months even after IIAC approves the cancellation," he said. "We also have to pay 25 percent of the rent in the final year of 2020 as a penalty, which amounts to nearly 300 billion won. All these terms are clearly in violation of the Fair Trade Act."
But in response, IIAC said Lotte's falling sales in recent months have little to do with the THAAD backlash.
"We believe Lotte's struggles have much to do with its excessive bid for the right to operate duty free shops at the Incheon airport," an IIAC official said. "The lease contract we signed with Lotte and other stores was already reviewed by the FTC and if the agency wants to look into the case, we will faithfully cooperate with it."
Lotte secured the right to operate duty free shops at the Incheon airport from September 2015 to August 2020. In return, it agreed to pay 4.1 trillion won ($3.6 billion) in rent during the five-year period, regardless of business conditions, thinking that Chinese tourists would continue to flood Asia's fourth-largest economy.
The company paid 1.01 trillion won from 2015 to 2016. This year, it has to pay 770 billion won and the remaining 2.32 trillion won from 2019 to 2020.
In the second quarter of 2017, Lotte Duty Free posted a 29.7 billion won operating loss, the first loss in 14 years.
