Hong Kong's low-profile DFS brand now ready to go global
Most people would not guess that DFS Group is a home-grown brand, let alone that it is the largest luxury retailer of cosmetics in Hong Kong. But it was here that the duty-free pioneer opened its first store in 1960.
The company has always maintained a low profile and media-shy co-founder Robert Miller rarely talks to the press. But the first part is changing as the company rebrands its DFS Galleria stores into a new concept called T Galleria.
In the past few years, the company has repositioned its city outlets as luxurious destinations on par with any upmarket department store, although still friendly to their core customer base of travellers. It has been rolling out the new name since September, first in Hawaii and then in Hong Kong last week.
"I think the [branding] focus has been a lot on the internationalisation of DFS, whether it was the opening in Abu Dhabi or the new outlet in Terminal 4 of JFK airport and maybe it was a bit of an oversight to communicate in Hong Kong that this is a very large retailer that is actually based here," chief executive Philippe Schaus said.
"It was a well hidden secret, but we are very proud of our Hong Kong roots."
DFS has two store models: airport and city. In the early days, city stores were simply extensions of the airport outlets. Customers would shop before they got to the airport and the goods, bought at duty-free prices, could be collected after they had gone through security. However, in a VAT-free city such as Hong Kong, DFS sells at the same prices as any other retailer.
The company hopes that the new name T Galleria will remove any confusion that its shops are only for people with a boarding pass while staying true to its travel retail roots. The "T" in T Galleria stands for traveller.
The company is focused on serving customers in their home language and maintains a global refund policy, enabling a customer to return a product at any of its stores worldwide and be reimbursed in their own currency.
While many retailers have only recently turned to the needs of the travelling Chinese shopper, a rapidly growing demographic, DFS has a strong head start.
Schaus said it was important to understand that the profile of the Chinese shopper was highly variable, and because of that he did not think in such terms. Besides the vast size of the nation, there was a huge variance in the level of sophistication of customers because of the rapid opening up of the mainland.
"First thing to understand, there is not a Chinese shopper," he said. "Contrary to us Westerners, in China there has been very high economic growth for the past 15 years.
"We were working on creating a dedicated men's area in Macau, so we formed focus groups with male mainland customers. It was several groups, each of 30 or 40 year olds. The conclusions we got were radically different, everything from the attitude they had towards luxury, the type of products they were looking for between these two age groups, much more different than if you had done a study in North America or Europe.
"People have gone through different phases of economic and political reform. There are those during the Deng Xiaoping era and before that those whose parents were in the Cultural Revolution. There are differences based on education - those who were able to go to university, those who were born 20 years ago know nothing of all of that, who grew up with the internet and technology, maybe they are spoiled a little bit. We cannot generalise anything. Even what I'm saying now is generalisation and I shouldn't do that."
Is the company concerned about alienating locals given the tourist shopper in Hong Kong is so strongly, and often negatively, associated with mainlanders? The T Galleria store at Chinachem Plaza in Tsim Sha Tsui East, for instance, sees almost no local customers. The clientele are mainland tour groups. Crowds often linger outside the store entrance, littering shopping brochures on the ground.
Schaus admitted the area outside the storefront could be improved, which the company was working on with the tour operators, but he said its other two stores - in Canton Road and Causeway Bay - and Hong Kong in general, offered multiple environments to shop in.
"From our perspective, a customer is a customer," he said. "There are moments of the day, if you take Canton Road where there is a lot of traffic in the stores. Then that's not the right place or the right time of day, and it's not just the case in our stores. The beauty of Hong Kong is there are so many places to shop … Chinachem is essentially a PRC customer. In Canton Road and Hysan Place, there is a mix, but predominantly a tourist business of all nationalities."
Business has grown 350 per cent since 2004 and DFS has just won three major concessions at the airport, but its ambitions do not stop there. Schaus and his team are eyeing an entirely new continent: Europe. "The vision of DFS is to move from a regional player to a global player," he said.
Europe is a key focus because American visas are more difficult to acquire.
Given that the group's majority stakeholder is the world's largest luxury conglomerate, LVMH, DFS has a significant advantage in the European market.
"We are absent today in the entire European continent and it is one of the most promising in terms of travel retail," Schaus said. "It will be quite interesting. We are a Hong Kong-based retailer that has a majority shareholder who is French, but we have no operations in Europe and are now studying how to open there.
"To just look at Chinese travellers, they say that there are 80 million Chinese travellers overseas today. We expect the number to double in the next seven years. That is just one nationality. You will also have other emerging market nationalities.
"We believe we are in a business that has inherent growth opportunities and that if we continue doing a good job of it, we will have a positive outlook."