COMMENT The vicious costs and loss cycle


Now and Then... “C


ost cuts at DFS to the tune


of $200m was The Duty Free Business’ March 1998 splash. Long- standing LVMH Moët


Hennessy CEO Bernard Arnault confirmed that DFS Group would cut $200m in costs over the following 18 months. This was linked to the all-engulfing Asian


financial crisis that gripped much of East Asia and threatened to spark an economic meltdown, or ‘Asian Contagion’, as it was regarded at the time due to the pronounced currency devaluations that rocked the markets. Arnault announced a productivity


programme to generate between $33m and $82m in its perfumes and cosmetics division over a period of three years, accompanied by a similiar move for wines and spirits totalling around $33m. For DFS, Arnault angled toward cost


reductions of $200m, speculating on a ‘quicker’ time frame of 18 months to claw back the costs.


South Korea pickup While admitting that the situation in Asia had hit the company, there were encouraging signs of a pickup in tourist numbers, particularly from South Korea. DFS today is not in South Korea and


judging by the current market situation, it is probably fairly relieved. What is interesting is that the move


to cut DFS’ costs came in the ‘middle of the second-highest capital expenditure programme in its history’. As such, Arnault made clear the


approach was not related to a ‘scenario’ of retrenchment. However, it was not so long ago that DFS was contending with similiar fiscal challenges in Asia, albeit not of the same ‘cost-cutting’ nature. The decision not to execrice its three-


year lease extension for liquor and tobacco at its much-revered Hong Kong Airport concession paved the way for CDF- Lagardère Company to eventually take the


86 TRBUSINESS


DFS Group took centre stage in the March 1998 issue of the ‘The Duty Free Business’, with a piece setting out plans to cut $200m in costs over an 18-month period. Other news included plans to double Aer Rianta International’s Bahrain Airport operation; and Inflight Duty Free Shop signing a five-year deal with low-cost carrier Go Fly.


concession, at the same time as DFS lost its P&C contract to The Shilla Duty Free. In slightly different circumstances, DFS once again fell victim to the tough economics of the business in the region and its then- depressed tourism market. As reported in TRBusiness Top 10 Operators


report in 2017, DFS’ momentum shifted in Asia, with new T Galleria openings helping to diversify the business. That has been helped by expansion at its


Macau store, growing its area to 16,072sq m. In 2017, Macau opened its first shoe hall in any store in the world, lining up alongside more than 40 fashion and accessories names including Luis Vuitton, Dior, Prada, Miu Miu and Fendi. Added to this is a 2,136sq m


beauty section featuring almost 70 beauty and fragrance labels. Twenty years on, DFS and global travel retail in general, has to contend with the cyclical nature of the tourism and spending markets. From Now to Then, not much has


changed....« MARCH 2018


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