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Duty-free shop DFS Group makes strong comeback to airport

DFS Group set sights on big-spending Asian passengers at Hong Kong airport after winning all three individual retail licences

PUBLISHED : Monday, 10 September, 2012, 12:00am
UPDATED : Monday, 10 September, 2012, 3:47am

DFS Group, which opened its first duty-free shop at the old Kai Tak airport in the 1960s, is poised for a comeback to the new Hong Kong International Airport after scooping all three individual retail licences opened for tender last month.

The Hong Kong-headquartered duty-free retailer outbid incumbent licence holders Hutchison Whampoa's Nuance-Watson and New World Service's Sky Connection to secure the three individual licences for selling duty-free liquor and tobacco, perfume and cosmetics, and general merchandise at the airport.

The handover of the 38 outlets of the three categories of duty-free goods will start from November - more than 14 years after DFS walked away from selling everything from drinks to cosmetics at the new airport when its concession at Kai Tak ended in July 1998.

"It has always been our hope to have a significant presence at the new airport," said Benjamin Vuchot, DFS Group's Asia north managing director. The airport's high percentage of Asian passengers - the biggest-spending of all travellers - was attractive to all retailers, he added.

Strictly speaking, DFS never deserted the airport business and, until last month's tender, was running 10 outlets in the west hall near boarding gate 60, selling products from watches to sunglasses.

However, the 38 additional licensed outlets it now proposes to open will boost its sales area some tenfold to 78,000 square feet. For the sake of projection, the sales of the 38 outlets topped US$458 million in 2010, followed by a 20 per cent gain in 2011. Meanwhile, the number of passengers visiting the airport just rose 6.6 per cent year on year in 2011.

The high concentration of Asian passengers, with their deep pockets and big spending ways, at the Hong Kong International Airport attracted 20 proposals from 11 bidders jostling for the three licences. The home-run victory by DFS in the open tender inevitably left some contenders surprised and even some of the vendors were startled, said one of the bidders, who declined to be named.

Vuchot attributed the victory to the firm's payments technology, which enables faster transactions at the airport outlets where every minute counts.

Passengers passing through the airport shopping area provided a ready target market for retailers, said Vuchot, but the environment presented certain limitations.

"Unlike shopping at downtown retailers, airport shopping is under the pressure of time. So retailers rely very much on providing a speedy service at checkout counters to make transactions as seamless as possible," he said. Innovative technology developed by DFS to simplify transactions was one reason it outbid rivals for the duty-free licences, Vuchot said.

DFS floor staff equipped with handheld point-of-sale card readers enabled passengers to quickly settle payments once they had made their selection, he said. This reduced queuing time and maximised time for shopping - and therefore maximised revenue opportunities for the group.

DFS is committed to continuous investment in the technology that will allow sales to be completed even faster. Even a reduction of a few seconds per transaction can translate to a significant increase in shopping time and sales, given that the passenger volume at the Hong Kong International Airport surpassed 53 million last year.

Last month, DFS opened its newest city-based outlet at Hysan Place in Causeway Bay. The 34,000 sqft DFS Galleria - a first for the group on Hong Kong Island - together with the airport expansion, will increase the group's retailing space by 30 per cent. The group currently operates 268,000 sqft in outlets in Tsim Sha Tsui and at the airport.

The aggressive expansion for the group comes at a time when retail rents have soared to new highs. But steadily rising tourist arrivals and growing retail sales had compensated for the higher costs, said Vuchot.

Vuchot, who has 18 years' experience in the luxury goods market in Hong Kong, says he has little to fear from the squeeze on retail margins. "Hong Kong is one of the most important luxury markets in the world and a very productive place to offset the expensive rents," he said. "DFS is looking at its Hong Kong business in the long term."

Before joining DFS in November last year, Vuchot was president Asia-Pacific of jewellery retailer Van Cleef & Arpels and held various senior posts at luxury brand Cartier.

Founded by Charles Feeney and Robert Miller in 1960, DFS opened its first shop in Hong Kong before spreading to Europe and across the globe.

At present, the group operates more than 200 outlets in Singapore, Los Angeles, San Francisco, New York, Mumbai and Abu Dhabi.

DFS is now majority-owned by French luxury goods retailer LVMH Moet Hennessy Louis Vuitton.
 


 

HK'S OPERATIONS

Existing operations:

  • 10 outlets at Hong Kong International Airport: 7,000 sq ft
  • Two Gallerias in Tsim Sha Tsui: the 115,000 sq ft DFS Galleria Sun Plaza on Canton Road and the 146,000 sq ft DFS Galleria Chinachem
  • Galleria at Hysan Place: 34,000 sq ft on two levels

Expansion:

  • 38 outlets at Hong Kong International Airport: 71,000 sq ft

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