Dufry battles trading
in Latin America
With the Summit of the Americas taking place this week, we examine the Latin America travel retail market through the eyes of some of the region’s leading players, starting with the market leader. Currency volatility in the second half of 2018 hit Dufry hard in Brazil and Argentina, and played a role in sharply reducing organic sales growth, as the company announced recently. We look at the regional performance and challenges.
On 14 March Dufry Group revealed what it termed a “resilient” set of full-year results for 2018, despite difficult trading conditions in certain territories. Nowhere was this turbulence more acute than in Latin America.
At CHF1,617 million (US$1,617 million), Latin America accounted for 19% of Dufry turnover in the year, down on the 2017 figure of CHF1,694 million. Organic growth across the year fell by 3.5%, with the H2 performance weighing heavily. Organic growth was down by 11% in Q3 and 10.3% in Q4, while the situation “remains challenging” well into 2019, said the retailer.
Several factors played a part. The business in South America deteriorated due to the devaluation of local currencies versus the US Dollar, most notably in Brazil and Argentina.
Dufry said: “Most operations in South America faced challenging conditions driven by a strong devaluation of local currencies. Brazil and Argentina were the most impacted locations with the Brazilian Real and the Argentinean Peso devaluing 15% and 70% respectively in the year. Other operations in South America also saw a slowdown in performance as a knock-on effect from the two key countries above, especially in the second half of the year.”
The business in Brazil was, and continues to be, sharply affected by currency volatility.
After a strong first half, sales growth slowed in Mexico, another major market. On the upside, the wider Central America and Caribbean region had “a good performance”, further supported by a strong development of the cruise business, where Dufry started operations onboard 16 new ships. Cruise sales grew by double digits, noted the company.
Commenting on the performance, CEO Julián Díaz said: “In Latin America, we started the year growing by 9%, in line with 2017. In the second quarter, we were flat, minus 0.2%. And then, gradually, the performance in organic growth deteriorated, minus 11% in Q3 and minus 10%, slightly better in Q4.
“The situation remains unchanged. The main problem here is still the deterioration from seven months ago of the currencies in Brazil and Argentina, and the impact that these two countries have on other destinations in the region.
If consumer confidence among Brazilian travellers is hit, most other markets in the region reap the negative effects.
“We expect that the situation will normalise in Brazil during the next four or five months. It's happened in the past.” By contrast, in Argentina, given the economic downturn and elections to follow later in the year, he said that recovery was likely to follow later.
More positively within Latin America, the pipeline of investment in stores continues. In 2018, of a total of 26,800 of gross retail space opened worldwide, 31% was in this region. Of the 34,800sq m of refurbishments across the network, 15% was in Latin America. Looking ahead, the company has 4,900sq m of agreed new space to open in 2019 and 2020 in Latin America.
Of the big recent projects, the opening of Dufry’s third New Generation Store in Latin America, and its first in Argentina, stands out.
At Buenos Aires Ezeiza International Airport, the company has opened a 3,000sq m walk-through store in Terminal A departures, with a strong focus on digitalisation, ‘retail-tainment’ and Sense of Place. The opening follows a major renovation of Ezeiza International.
Here, the beauty portfolio has been remodelled, with new labels for the airport including Tom Ford, Jo Malone London, La Mer, Benefit, Giorgio Armani Makeup, Givenchy Makeup and Coach fragrances. In wines & spirits there are two tasting bars that enhance sampling opportunities and a wine cellar dedicated to Argentinean products.
Sense of Place is delivered through the ‘Thinking Argentina’ area, where passengers can find products that reflect the country’s culture. The assortment offers products from regional confection alfajores to Patagonian gourmet foods.
Thinking Argentina: The New Generation Store blends digitalisation with Sense of Place.
Dufry is also working on the renovation and improvement of its arrivals shop at the airport, which is expected to be concluded in the third quarter of this year.
Dufry Divisional Chief Executive Officer Central and South America René Riedi said: “Despite the challenging environment in Latin America, especially during the last year, it is important to emphasise the relevance of this region for Dufry and the huge tourism potential that it offers and that can be further explored.”
Key categories: A strong local wine offer (above) and a powerful sunglasses range (below).
The Moodie Davitt eZine | Issue 258 | 26 March 2019