Carry-on Shopping

You began your airport retailing career at Shannon Airport, which was the first duty free retailer in the world. As Executive Vice-Chairman of what is now one of the largest airport retailers in the world, what can you say about the development of the duty free industry?

The duty free industry was born in Shannon in 1947, because that was the first refueling stop for flights crossing the Atlantic and going on to Europe. In the first year the industry brought in something like $20,000, and today the industry is worth $40 billion. Half of that money comes from airport operations, the other half comes from border shops, cruise liners, and the like. The governments in Dubai and Ireland entered into a six-month contract in 1983, and a team of people was sent here to set up Dubai Duty Free. I was part of that 10-man team. The plan was to write a procedural manual, set up the operation, and then leave. During that time myself and a couple of other people were asked if we would stay on here, and we agreed to stay for two years, and we’re still here 28 years on. We started with 100 staff, and we still have 52 of those 100 staff working for us. In total now we have 4,000 staff working for us. In the first full year of business in 1984, we had sales of $20 million. In 2011 we had sales of $1.46 billion, and we are the single biggest airport retailer. That has been helped along the way by the fact we have been growing, our penetration has increased, and of course the traffic through the airport has been increasing. We currently have 51 million people through here yearly, and the projections for 2020 are for this to hit 95 million.

The majority of airports lease retailing space. What was your motivation in taking a different approach when establishing Dubai Duty Free?

In Dubai we operate all the retail activities at the airport and we have 18,000 sqm of space. We think our model suited Dubai better than the concessionaire approach because 28 years ago Dubai was very small. It needed marketing, it needed promotion, and also it needed input into the community. Dubai Duty Free was one of the first companies in Dubai to take on that marketing role and position Dubai as a growing and important stop-over and destination for international travellers. Our famous advertising strapline of “Fly Buy Dubai” and our tentative steps into sports marketing way back in the 1980s helped raise the profile of Dubai, the airport, and, of course, the duty free operations. Our model has also worked extremely well for the development of the airport, and we work closely with Dubai Airports and other stakeholders on rolling out development plans. Concessionaires would not have the same overall objectives that we have, such as the long-term promotion of Dubai or the setting up of a charity foundation that we established in 2004. We think that our model has been successful and it has worked out better than the alternative would have done. Around 75% of everything we sell we buy from local suppliers and distributors, many of whom were the original shop owners at the airport. So from the point of view of the Dubai economy, our contribution is significant. Although we buy everything locally and can get speedy deliveries, we still need to have a logistics and distribution center here which covers 27,000 sqm. The handling of our stock is 70% automated, otherwise we couldn’t cope with the quantity of stock that we deal with. We sold 17 million pieces of merchandise in 2011. In November we did 62,000 transactions every day at our points of sale. That’s fairly average for us. We deliver between 500 and 1,000 pallets to the duty free area every day from here, all of which are shrink-wrapped, x-rayed, secured, put into sealed trucks, and delivered.

Dubai Duty Free invests a huge amount in developing infrastructure. What challenges does the business face in this respect and what further developments are underway?

We invest a lot in Dubai. We built a head office, where we have 6,000 sqm of space. In addition to this, we have a 27,000-sqm distribution center. We are in the process of finalizing a five-star hotel here in Dubai that will be managed by Jumeirah Hotels. We’re owned by the government, but we are given a great deal of freedom to make our own commercial decisions. I am very privileged to report directly to HH Sheikh Ahmed bin Saeed Al Maktoum, who is the President of the Dubai Civil Aviation Authority and Chairman of Dubai Duty Free. His Highness is also the head of Emirates Group, and heads up several important entities here. He is a fantastic boss to have and has always been incredibly supportive of our operations.

According to a recent report, Dubai is now competing head-to-head with London as the most popular retail city in the world. Are the new malls here proving to be stiff competition for Dubai Duty Free?

It’s healthy competition. I think the development of the retail sector, including the development of the duty free industry around the Middle East, is good. When we came here a lot of suppliers didn’t know where Dubai was, and then we began to grow and other airports in the region began to open and develop very good operations. That regional competition has helped us with the suppliers in the duty free industry to take more notice of the region. The duty free industry in the Middle East is worth about $3 billion a year, and we account for half of that. A lot of suppliers have set up regional offices here, and they do exclusive promotions with us. So from the duty free industry point of view, competition is good. I think from the downtown retail perspective, Dubai’s malls serve as a fantastic attraction to visitors, and we welcome that fact as it increases traffic at the airport and our own operation. Of course, we have to constantly review our products and prices in relation to downtown retailers, but overall we offer great value.

What are some of the challenges facing the industry today?

It’s a very vibrant and adaptable industry generally. We run into certain problems, for example airport security, which created a problem in time delays at certain airports. And the restrictions on carry-on luggage introduced by certain carriers caused issues for us. For many years there have been ongoing discussions by the World Health Organization (WHO) about stopping the sale of cigarettes in the duty free industry. That hasn’t happened, and it may never happen, but there is a lobby there to make it happen. The duty free industry now requires that cigarettes carry health warnings, and this was not the case before. While perhaps a positive move, it may have consequences for the duty free industry worldwide.

How did the global liquidity crisis affect your operations, and how far has the industry recovered?

During the recession, traffic continued to increase at the airport and the duty free business continued to grow. If we take the last three years; in 2009 our business was up 3% on the previous year; the next year it was up 14%; and in 2011 our sales were up 15.7% on the previous year. How we do this is to focus on increasing our penetration levels, which are currently around 50%, and try to drive up the average amount spent per departing passenger, which is currently around $49. If you take the average penetration for most duty free stores, they sell to about 20% of departing passengers. We are well positioned and centrally located in all of the terminals, and that is obviously a great advantage and comes from our close working relationship with Dubai Airports and other stakeholders. Also, we make sure that our staff are well trained and motivated. And, we continue to offer good value. The recession, therefore, didn’t hit us too badly.

© The Business Year – February 2012