Dubai Duty Free


Maintaining a robust revival at Dubai Duty Free

Dubai Duty Free will have reopened most of its retail estate at Dubai International by December, a signal of hope as travel returns to the world’s long-time number one airport for international passenger traffic. Dermot Davitt speaks to Dubai Duty Free Chief Operating Officer Ramesh Cidambi about the rebuilding phase, and about some of the challenges that 2022 will bring.

With Dubai International Airport returning to full reopening of its concourses and terminals, and passenger traffic rising each month, there is reason for optimism about the path to recovery at anchor retailer Dubai Duty Free. Speaking at the Virtual Travel Retail Expo in October, Executive Vice Chairman and CEO Colm McLoughlin said that the company was progressing towards a target of over US$700 million in sales for 2021, ahead of 2020, though well down on the previous high of US$2 billion. Building on this in an interview as last month closed, Chief Operating Officer Ramesh Cidambi says that the performance has continued to strengthen. “Through October we have recovered nearly 58% of our business compared to October 2019. Passenger traffic in the month has recovered to around 50% (around 120,000 a day on average) and the number of flights to 60%. So October has been the best month so far since the pandemic began, following September which was the best performance until that point. We are seeing higher penetration and higher per passenger spends.

“At Dubai Duty Free we are not budgeting for the Chinese to return until at least mid-2022, so for Q1 and Q2 China does not feature in our forecasting or in our ordering, in terms of our product mix.”

Dubai Duty Free Chief Operating Officer Ramesh Cidambi

“So there is momentum and you see it too. When you come to the airport, check-in looks busy, the shops look busy, so even visually it is clear.” The positive news has gradually built over recent months following volatility in the first half. Cidambi says: “We saw passenger numbers climbing from June to December last year but then from January to May we had markets close, reopen, restrictions imposed and then eased in the major geographies. From June onwards it has been steady traffic growth, almost in a straight line. In August at Dubai International we were at 30% of pre-pandemic traffic, in September 37%, in October 50%. “Importantly, during that period we have consistently managed to keep the average spend and penetration level higher – by double digits – than the comparable month last year.” That is an impressive performance considering that most Asian travellers [Asia, led by China, represents 25% of Dubai Duty Free’s sales in a ‘normal’ year - Ed] have not yet returned. But the UK, Indian sub-continent and other key markets have shown robust growth in traffic and contributed to spending, notes Cidambi. “Until recently we were just by restrictions imposed by other countries. With these largely relaxed, except for Asia, and cases now under 100 per day in the UAE, plus high vaccination rates in the US, Europe and much of the Middle East, that has propelled travel.” That big picture bodes well for the months ahead, with tourism on the rise and the attraction of Expo 2020, which began last month in Dubai and runs for six months, plus other sporting and business events. “The best months of the season are ahead of us, with the weather getting cooler, a packed calendar, and we know that Expo will attract numbers as time goes by. It is a great showcase for Dubai and for innovation around the world.” The boost in transit and visitor traffic is clearly resonating in Dubai Duty Free’s sales figures. The challenge for all travel retailers that have seen penetration and spending rise is to maintain those comparative increases once passenger traffic returns at scale. Cidambi says: “If you take a ten-year view, this kind of spend and penetration increase in unusual so it will probably not remain as elevated as it is today, especially as people fly in more predictable ways and more often, and as airports become busier. “But what we can do is to continue to improve the retail offer and keep it fresh; manage inventory well; manage supply chain; manage staffing and improve the digital engagement with the traveller. And we still have to do all of this in the middle of a pandemic.”

A new gold shop in Concourse B adds to the allure of the offer as Dubai Duty Free maintains its investment drive

Planning ahead

As noted above, among the big challenges facing Dubai Duty Free and other retailers is inventory management. With 25% of sales to Asian travellers, demand planning becomes difficult, both for the retailer and luxury brands in particular. “When a quarter of your business to a particular geography vanishes it does impact certain brands and categories disproportionately,” says Cidambi. “So even though we reduced inventory by -50%, and sales dropped -40%, it is not spread evenly. The impact is higher on certain areas of the business and it makes planning complex. “You can be over-stocked in certain categories. The impact has been greatest in watches, precious jewellery, fashion. Dating of the stock is another headache. A watch does not expire but it does get dated as trends and fashions change. So does skincare. “These challenges will remain acute. We will also see supply chain problems through the Christmas period and into next year. In terms of fast moving items, availability and reducing the amount of stock will continue to be a challenge while we have these inventory challenges. “We have to keep an eye on supply as much as on demand. We have to look at what is coming down the track and plan accordingly. At Dubai Duty Free we are not budgeting for the Chinese to return until at least mid-2022, so for Q1 and Q2 China does not feature in our forecasting or in our ordering, in terms of our product mix.” The absence of a key shopper demographic influences the size of the offer on the shelves; so too does the retail footprint. Dubai Duty Free had about 23,000sq m of space open by late October, but this is set to rise to 9,000sq m by the end of November with the opening of Concourse A and a second arrivals shop in Terminal 3. That will put the retailer not far short of its peak of 37,000sq m in retail space that was open in previous times. “We have now around 120 shops open,” says Cidambi. “With the exception of Al Maktoum International Airport, most of our retail areas will be back up and running by early December. That, combined with us serving a wide base of customers from Europe, Africa, Middle East, Indian subcontinent, North America and South America, it means we can have a wide product portfolio in terms of references.”

The stunning new Dior boutique in Concourse B lends further allure to an enhanced luxury offer

Store development

Aside from reopening existing space, there are several exciting new stores to build the footprint further. “We opened Dior in Concourse B on 30 September, and performance has been fantastic to date,” says Cidambi. “It is a gorgeous shop and its sales have been incremental we believe, with no impact on other fashion offers.” In a landmark move, Louis Vuitton will open a boutique for the first time at DXB in week three of December. This will be followed by Cartier at the end of January. Cidambi says: “We are continuing to look at opportunities to expand the fashion offer in Concourse B. We are negotiating with Dubai Airports for some additional space. There could be an opportunity to do more here. But the luxury offer now is very impressive. We will soon have Louis Vuitton, Dior, Cartier, a new gold shop, Bvlgari, Chanel, Ferragamo, Chanel and Gucci. This is a fantastic line-up and contributes to a higher spend per passenger.” Expanding the store portfolio complements what Dubai Duty Free is doing to extend its digital footprint, to engage with consumers directly across multiple channels. Cidambi says: “We aim to be better at acquiring customer information, building up our customer database, contacting the customer, and working with brands to lift our digital marketing. “This is a big focus for us. How can we communicate with the customers before they come to the shops? How can we communicate while they’re in the shops? How can we communicate afterwards? And can we get a better understanding in terms of repeat customer behaviour, retention of customers, looking after the customer and the whole cycle? From a management point of view that will continue to be a priority in 2022 just as much as the development of the physical retail offer has been.”

Inside the Dior boutique, which is performing well even amid reduced passenger traffic

Uncertainty remains

Even with many positives to highlight, Cidambi points out that the airport will still end up with around 28 million passengers this year instead of 90 million two years ago, with sales running at around 40% of 2019 levels. “We are not out of this situation yet,” he says. “As a retailer we must look after our own health and wellbeing, the health and wellbeing of everybody on the team and of the customers when they are in our in the shops. “In a general sense we can be optimistic as we see vaccination levels rising, booster shots happening and all of that decreases the possibility that we will have a new virulent strain that will cause as much damage as Delta did. The world is opening up now although we will still see some volatility. “But regardless of the challenges, we will still have a significant business and have largely built pandemic risk into our forecasts. We are anticipating 56 million passengers at the airport in 2022, and we may do US$1.3-1.4 billion in sales. That is an important business for Dubai and it is important for the travel retail industry.” *This is an edited version of an interview that will appear in the Official MEADFA Guide, published by The Moodie Davitt Report for the Middle East & Africa Duty Free Conference (22-23 November). The title will be sent in digital format to our worldwide readership in advance of the event.

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The Moodie Davitt eZine Issue 303 | 17 November 2021

The Moodie Davitt eZine is published 15 times per year by The Moodie Davitt Report (Moodie International Ltd). © All material is copyright and cannot be reproduced without the permission of the Publisher. To find out more visit www.moodiedavittreport.com and to subscribe, please e-mail sinead@moodiedavittreport.com

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