TBY talks to Colm McLoughlin, Executive Vice-Chairman of Dubai Duty Free, on the development of the global duty free business, Dubai as a retail hub, and challenges facing the sector.
TBY 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?
COLM MCLOUGLIN 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, and we agreed to stay for two years; we’re still here 28 years later. We started with 100 staff, and we still have 52 of those 100 staff working for us. In total now we have 4,000 employees. 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 serve 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 registered 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.
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