Interview • Dubai Duty Free

Dubai Duty Free strives for US$2 billion amid “fantastic year”

Dubai Duty Free Executive Vice Chairman & CEO Colm McLoughlin reflects on a period of healthy growth as the retailer targets US$2 billion in 2018 sales. By Dermot Davitt.

From early 2018, Dubai Duty Free management has been fixed on reaching its big goal for the year: US$2 billion in sales. Buoyed by healthy revenue from growing numbers of Chinese, by rebounding Russian passengers and by store investment among other factors, the world’s leading travel retailer at a single airport looks well set to exceed its US$1.93 billion in 2017 turnover.

Dubai Duty Free Executive Vice Chairman & CEO Colm McLoughlin says: “In the first eight months sales have climbed by around +8.5% compared to last year. For us that translates into about US$100 million, and that growth rate has been constant throughout the year.”

He notes several factors that have contributed to revenue growth in 2018.

Colm McLoughlin: Revenues are on the rise, but profitability has also been protected and enhanced in 2018

“Our Chinese passengers have become very important. Their spend per head is much higher than the average; in July they were 2.3% of passenger numbers at the airport but 17% of the business. Indians remain a big part of our business, we have seen other Asian nationalities grow too, Russians have come back strongly, and we recognise the emerging growth of African traffic.”

Liquor, perfumes and tobacco remain the three biggest categories for the business. In the first six months, liquor sales showed a solid rise of +7%, hitting US$151.55 million, while perfumes, which are 15% of total sales, reached US$146.46 million. Tobacco sales increased by a sharp +36% over the same period last year. Other notable first-half increases came in cosmetics (+27%) and electronics (+25%). For the first six months Dubai Duty Free recorded average daily sales of US$5.6 million.

McLoughlin notes the contribution of categories such as consumer electronics and luxury goods amid renewed investment in space.

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“Our new Bvlgari shop in Concourse B has been a big success, with its jewellery, watches, accessories and perfumes offer,” he says. As we reported online, the luxury brand and Dubai Duty Free partnered for the opening of a boutique in January.

McLoughlin also hails the performance of the Apple stores, and their contribution to double-digit electronics sales.

“To the end of August we sold 180,000 units in the two dedicated Apple shops, including iPhones and accessories. It’s a great business.”

A buzzing category: A stellar performance from Apple products has buoyed the consumer electronics business

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McLoughlin notes the support that the retailer has had from suppliers across both established and emergent categories in the past two years.

He says: “We have good relationships with our suppliers who are responding well to our needs. They now recognise that it would be unfair if they did not react when currency turns in their favour, for example. They work hard on training our staff. We have very good partners among the brands.”

Dubai Duty Free’s growth is being aided by expanded space at Dubai International. As reported, a major refurbishment of Concourse C, which features new watches and electronics shops, will be completed by year-end across 4,700sq m.

A force in fragrance: Dubai Duty Free’s second biggest category hit almost US$150 million in first-half sales

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“Concourse C sales are up about +50% over last year, mainly as a result of new retail areas we have opened already. We have also done a lot of work in Concourse B, clearing the central aisle and creating more space for passengers,” says McLoughlin.

Although the performance in 2018 to date has been one of consistent growth, there have been hurdles to overcome too. The UAE’s introduction of VAT at a rate of 5%, which came into effect from 1 January, is one.

“This has slowed our tobacco business in arrivals,” notes McLoughlin, “but that has been more than offset by increasing sales in departures, which are unaffected.”

Dubai Duty Free now manages 38,000sq m of retail space, with continued investment across Dubai International’s terminals (sunglasses in Concourse D pictured)

Size and weight restrictions on hand luggage have also been a problem for several years, with a 7kg limit (including duty free shopping) imposed by airlines in the Gulf, including Emirates.

McLoughlin says: “It’s still happening. It is a particular issue for powdered milk and brands such as Nido or Tang, which sell in bulk. It’s not as severe as it was before, but we are still giving refunds to customers who are stopped from taking their goods onboard.”

Other initiatives have helped to offset any downturn associated with such restrictions. One is a scheme (introduced in late 2016) whereby Emirates Airline travellers can redeem air miles for duty free purchases. “People who have built up Skywards Miles can pay using these at Dubai Duty Free,” says McLoughlin. “It’s working well. In 2017 we exchanged around 1.2 billion miles, which comes to about AED25 million (US$6.8 million), but it’s a good thing for us to do for our customers.”

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The retailer aims to make shopping a seamless process for Chinese travellers, aided by technology, marketing and almost 800 staff from the country

Of the 38,000sq m of retail space managed by Dubai Duty Free, only a small proportion is located at Al Maktoum International, but all that will change over the next decade. The new facility will be the future home of aviation in the emirate, and is opening in phases. A recent redevelopment of the departures area included a refurbished Gifts from Dubai, plus electronics, perfumes & cosmetics and liquor & tobacco shops. By year-end, Dubai Duty Free will have expanded its space from 2,500sq m to around 4,500sq m.

McLoughlin says: “In the middle of the next decade Al Maktoum International will have capacity for 118 million passengers a year. There will be a new terminal, two new concourses, a six-track underground train system, three runways, and eventually Dubai Duty Free will have 80,000sq m of retail space. In the next phase, happening now, capacity will grow from five million to 27 million passengers a year.”

The company’s role in marketing ‘Dubai Inc’ continues, with its commitment to invest 2.5% of its top line on sponsorship and other activities that raise the emirate’s profile worldwide.

Luxury goods now carry a greater emphasis than ever before at Dubai Duty Free (Concourse D Burberry and Tiffany stores pictured)

“We benefit through the investment too,” notes McLoughlin. “While we have spent a lot of money on our tennis sponsorship, for example the value of our tennis in media terms is worth just short of US$1 billion; that’s what we would pay in advertising for the same level of exposure. The Dubai Duty Free Irish Open and Dubai Duty Free Irish Derby combined are worth around US$160 million in media terms. These are sponsorships we have renewed and will continue. But we assess our investments in marketing constantly to ensure they add value.”

Listing the company’s priorities for the rest of 2018 and into 2019, McLoughlin says that people and profitability are high on his agenda.

“Our profit level is very satisfactory, up by +7.5% in the first eight months. We have been smarter in when we offer discounts on special days, and we have not been hit by currency fluctuations in the same way as in previous years.”

On people, he adds: “We invest heavily in ensuring our staff are happy, and that also helps us to promote Dubai Duty Free. It’s especially important to recruit well to serve new and growing shopper groups.”

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Here, a focus on the Chinse traveller is paramount. Of the retailer’s staff of just over 6,000, almost 800 (around 13%) are from China. This year alone the company has recruited around 200 Chinese staff to cater to surging demand. This complements other activity to encourage Chinese spend. Among these is a strategic partnership, announced in July, between Dubai Duty Free and Chinese travel services powerhouse Ctrip. This promotes Dubai Duty Free’s shopping offer to Ctrip’s customers, offering them a -5% discount on a wide range of items. The campaign runs until the end of 2018.

“Our Chinese staff are very important in encouraging shopping from these important customers, and many other employee nationalities play their part. We have 2,400 Filipino staff and Dubai Duty Free was recently named Employer of the Year in the Filipino Times Awards. We are very proud of that achievement.”

McLoughlin says the strong emphasis on keeping employees motivated and happy will continue, as will the focus – in good times and in bad – on profitability.

For now, the big picture is bright, especially after a tough 2016 that was affected by currency and a downturn in spending among some key nationalities, followed by consolidation and improvement in 2017.

McLoughlin says: “2018 has been a fantastic year for Dubai Duty Free. We have continuously grown our business and are happy to see a double-digit increase. With our current trend I expect that we’ll break US$2 billion in sales. We are satisfied with our progress.” 

The Moodie Davitt Report • The Online Magazine • October 2018