Duty Unbound

How did Dubai Duty Free maintain its stability during the economic crisis that hit Dubai?

Despite the global recession of recent years, Dubai Duty Free has consistently managed to increase its turnover year after year. In fact, we are now in our 30th year, and have only had one year where sales didn’t increase over the previous one, and that was in 1991 during the Gulf war; our numbers were unchanged from the previous year. During the recession of 2008 and 2009, we registered growth of 11% and 4%, respectively. We took a very conscious decision at that time to scrutinize our costs. And while we did not let any staff go, we did temporarily freeze recruitment. We also examined each of our processes to ensure that we were offering the best possible value to our customers. As part of this, we held surprise promotions whereby, for example, we would offer a 20% discount in one category on one day, and a different discount in another category the next. We observed that our business was doing very well as a result. We provided additional training, boosted staff motivation, and set goals and budgets; the scheme worked out very well for us. One key consideration in the duty free business is to sell to a larger percentage of traffic to boost sales figures. In comparison to the best airports around the world, we sell to 49% of departing passengers. In contrast, a good figure at Heathrow, Singapore, or Charles De Gaulle, for example, would be at around 17% or 18%; clearly we sell more. We do so because we offer good value for money, serviced by well-trained employees. We make sure that our retail offer is positioned very well in a convenient, accessible, and central location, and in most cases all departing passengers reach their flights by walking through the duty free area.

Is the increase in sales linked to the influx of passengers through the airport?

It is linked to the passengers; they are the crucial factor, and their number has continued to increase annually. Over the past few years, the passenger figure at Dubai Airport has risen notably from 47 million to 51 million in 2011, and 57 million in 2012. In 2013, the figure is set to reach 66 million passengers. That makes Dubai Airport the second largest in the world in terms of international travel. Some other airports have more passengers, such as Atlanta with 95 million; however, many of their flights are domestic. Traffic is very important to us, but, more importantly, we must also make sure to sell more per passenger than we have been doing. In our first year here, 30 years ago, per passenger sales were at $5.50. In stark contrast, by 2012, we were selling $47 to each passenger.

How do you manage your portfolio?

We have a team of about 30 people at our buying office, who liaise with our suppliers and representatives, and attend trade fairs to keep up with new product offerings. Indeed, we have spread our range of categories far beyond what use to be described as “traditional duty free offerings.” Many years ago, there was liquor, tobacco, and perfumes, until other products crept in, such as electronics. We try to have a range of products that satisfies everybody, and do not confine ourselves to luxury brands as our customers have diverse needs. For example, we sell 1,000 tons of powdered milk every year at our confectionery shop. We also sell three tons of gold. In 2012, we sold 73 million items of merchandise amounting to 23.5 million transactions at our registers, which averages at 64,300 transactions per day. In 2013, we are completing 70,000 transactions each day. At the end of this year, I am confident of being able to announce the completion of 25 million transactions on sales of 80 million items of merchandise. The distribution of our merchandise at our distribution center is 90% automated, enabling us to deal with demand that we otherwise couldn’t manage. Our range of categories is quite wide. Some of our smaller ones in fact, generate a large income for us; even the humble phone card generates around AED100,000 for us every day. We also sell AED70,000-AED80,000 worth of sunglasses every day. A category like confectionery, which was not traditionally a duty free airport item, accounts for around 6%-7% of our total business, which is perhaps worth AED300 million. In 2013, we expect our turnover to reach AED6.6 billion, which is about $1.8 billion. While our sales are undoubtedly impressive, our success is down to a number of important factors. First and foremost, we have had the support of the government of Dubai (Dubai Duty Free is now a part of ICD) from the beginning and I am particularly appreciative of my own boss, HH Sheikh Ahmed Bin Saeed Al Maktoum, President of Dubai Civil Aviation Authority and Chairman of Dubai Duty Free.

What impact has the opening of the new concourse had on Dubai Duty Free?

Developments at the airport inevitably have a notable impact on our business. The airport and Dubai Duty Free have a common owner: the government. Any new concourse that is opened at the airport receives financial support from Dubai Duty Free. That is where our money goes. We naturally spend on developing our own facilities, but also help to finance the overall infrastructure of the airport. In 2012, we borrowed $1.75 billion via a syndicated loan from 26 banks, which is being used to finance the construction of the next concourse (Concourse D), currently under construction. The opening of Concourse A was significant for us, and we have 8,000 sqm of retail space in it. We specifically recruited 1,600 additional staff for the concourse, which brought our current staff level to 5,800 people. Clearly, we are part of the airport’s story of growth and success. I think we have had an excellent impact on Concourse A, and we find that it is working very well for us. What’s more, it has helped to ease the congestion previously experienced in Concourse B.

How has your experience helped you drive the company’s success in Dubai?

When we launched Dubai Duty Free, we had 100 staff. We still have 44 of those original people working with us 30 years later, while 207 of our employees have been with for us for over 20 years. Within our company we have tried to build a family-oriented team. We value our staff and ensure they are fully trained for the job. Three decades ago, there were only three million passengers passing through the airport; in 2013 there will be 66 million. Many factors have contributed to this exponential growth; tourism has been promoted, Emirates Airline was born, the hotel sector has blossomed, and real estate began to develop in Dubai. Around 25 years ago foreigners could not buy property in Dubai. Today they can, and they have in fact become a key contributor to the economy. Tourism has grown; and, to accommodate this, so too has the airline business. You cannot find a better growth story than Emirates Airline in the airline industry anywhere else. We have tried to keep pace with that. Originally, we had just 100 staff located in an area of about 1,800 sqm. We now have 5,800 staff in a 26,000 sqm area. Sales in our first year amounted to AED70 million ($20 million), and by 2012 the figure had soared to AED5.9 billion ($1.6 billion). We keep pace with infrastructural developments, and adjust our operations accordingly. Apart from the core duty free business line, we were one of the first companies in Dubai to promote Dubai abroad, mainly through events and sports sponsorship. We have, for 17 years, sponsored horse racing at Newbury in England. We are the main sponsor of the Dubai Duty Free Irish Derby, and have been for many years. We have also sponsored tennis weeks during the men’s and women’s tennis tour, and are part of the highly successful Dubai Duty Free Tennis Championships. Building on this, we built our tennis stadium, our Irish village, and our hotel, the Jumeirah Creekside. The men’s tennis players have voted our tennis tournament the best in the world for nine of the past 10 years. The sport of tennis is an expensive one to promote, and in 2012 Dubai Duty Free was selected as an exemplary company by the Emirates Competitiveness Council. An international symposium was held in Dubai, and a study was conducted to assess the nature and perception of our business. Two interesting points emerged from that study. The first was that over the past 29 years, traffic through Dubai Airport had increased by 1,700%. Dubai Duty Free too, had grown by 7,200%. The second thing we learned was the true value of the Dubai Duty Free Tennis Championship—in promotional terms for Dubai—while it was valued at $381 million for 2012, in 2013 the value of TV coverage of tennis has risen to $528 million.