Philippe Schaus explains how DFS became No. 1 in luxury travel retail, and how Macau still has big potential as a shopping destination.

It is one of 15 such “Gallerias” around the world, complemented by other DFS airport shops spread across 11 countries. The group today employs more than 7,000 people, and has become synonymous among travelers with luxury goods shopping.

DFS has come a long way to reach this point at the high end of the luxury retail experience. Founded more than half a century ago by Robert Miller and Charles Feeney at Hong Kong’s Famous old Kai Tak international airport, Duty Free Shoppers was for many years a seller of souvenirs and other typical travel trinkets. But, as Schaus explains, the rise of Japanese outbound travelers in the 1960s started to show the spending power of a new kind of consumer inside the group’s duty-free shops. Where these travelers went, they soon enough found a DFS, as Miller and Feeney pursued them relentlessly.

The company’s expansion into Hawaii was particularly important, as was its foray into Europe, where the founders saw the obvious potential of the elite luxury brands in catering to the booming Japanese tourism industry.

And then, with the rise of the Chinese outbound traveler from the late 1990s, DFS’s evolution into a luxury retailer hit top gear. As did its valuation – with global luxury giant LVMH buying into the company for US$1.6bn in 1997, making Miller, who still owns a 31% stake, a very rich man in the process.

DFS shops come in two types. Schaus says they are currently split evenly between the airport stores and the “down town” outlets, or Gallerias. These were originally envisaged as providing as efficient way for shoppers to browse for goods when they had more time on their hands, allowing them to place orders that could then be picked up inside the duty-free area at the airport before boarding their planes. Today, Schaus chuckles, the Gallerias have come to be seen much like other department stores, as their goods are of such premium quality that the duty-free aspect of their price tags is often no longer a consideration.
“DFS has evolved enormously, especially in the last 5-10 years,” Schaus explains. “From selling liquor, cigarettes, lighters, etc, we now sell million-dollar watches. There has been a big upgrading throughout our network. Our shops here in Macau are pure luxury.”

It is not only about the décor and design, Schaus is keen to point out. Services are a vital part of the strategy. Platinum Services Club (PSC), for instance, offers special customers a lounge to rest and refresh in with food and beverages. For high net-worth clients, special limousine services are also provided. “This has all been part of the evolution of our group,” Schaus says.
The people who have driven demand most recently for DFS’s products and services are everywhere to be seen outside our interview room on this day. Lines are evident at several of the top boutiques – Chanel and Dior had the longest – and the entire mall is packed with Mandarin-speaking customers.

“Yes,” Schaus acknowledges, “the rise of the Chinese outbound traveler came at a good time for us. We were already in the process of upgrading, but we were nevertheless pleasantly surprised by the magnitude of the shift in the market caused by the Chinese customer. Nobody had anticipated how strong it would be.”

It is probably fair to say that nobody responded to the rise of the Chinese outbound traveler as well as DFS did, by focusing in their now-legendary insatiable appetite for luxury brands. As Schaus explains, what makes DFS so unique in catering to luxury goods shoppers while they are traveling is that the company is dedicated to providing a “seamless shopping experience.”

 

“It is easy to move from one product or brand to the next in our stores,” Schaus says. “So we have become known as the place where people in search of education or understanding of luxury lifestyles come. Our message is simple: you decide what of luxury lifestyle you want to create, and we will help you find what is best for you.”

It goes without saying that location, location, location was an advantage for DFS in the early days of catching wave after wave of outbound travel from China. For many Chinese, an airport was (and often still is) the place where they first encountered foreign-made luxury goods. And so it seems natural that DFS has taken on a role as guide for customers in search of an understanding of what a luxury lifestyle entails.

“We like to say that ‘DFS is your first point of entry into the world of luxury,” Schaus says.

Schaus is quick to emphasize that these customers are never taken for granted in their tastes and styles, as the Chinese market is, firstly, complex, and secondly changing rapidly. “The Chinese market is not homogenous,” he says. “Contrary to what we see in the western world, where several generations have had a very similar educational experience, in China, each generation is very different than the previous one, and has a totally different outlook on the world around them. So it is useless to talk about the ‘Chinese consumer’, because really they are very different between the age groups.”

The geographical diversity of China also makes it a challenge to generalize about customers, Schaus says. “Among the first, second and third-tier cities, there are wide ranges of sophistication and knowledge about luxury brands,” he says. “So again, we cannot take any of these customers as a single group and make assumptions about them.”
Nevertheless, DFS remains focused on a core group of luxury brands, with which it has worked so well over many yeas, Schaus says. While admitting that customers are very capable of switching their brand loyalty as their lifestyles adjust and change, Schaus sees the DFS brand partners as being tried and tasted over many years now. “This industry is built on personal relationships, and we have very personal relationships with all our partners,” Schaus says. “We have a strong mutual loyalty.”

Tried and tested is an apt description for many for the brands that have been represented in the DFS Galleria Macao. Today’s packed shops inside the Four Seasons and the Venetian Macao are a very different sight than the situation nearly five years ago, when the hallways were largely deserted and there were plenty of critics. Macau was not yet a shopping destination back then, especially not for luxury goods. So it would be easy to expect Schaus to be gloating today, or at least claiming vindication of the group’s decision to invest. Instead, he is focused on what is yet to come, saying that DFS believes Macau is “still at the early stage its development”.

“We are firm believers in Macau’s potential,” Schaus says. “As access to Macau is improved with better infrastructure, more people will come. And, as we are already seeing, the percentage of their time and budgets will be more devoted to shopping.”

That said, Schaus says DFS will be focusing in the foreseeable future on strengthening and developing its existing facilities (which include shops at City of Dreams) rather than chasing expansion into the plethora of new resorts spring up in Cotai over the coming years. This focus includes the introduction of new brands into its mix at the different properties. “We opened 25 new boutiques here [at the DFS Galleria Macao within The Shoppers Four Seasons at The Venetian Macao ], which included several new brands, because we believe this is a good market in which to test them,” Schaus says.

The DFS chief clearly warms to the topic of whether a Chinese brand might one day be among those partners, nothing that there are already good brands among the Chinese spirits represented in the company’s liquor offerings. “There are undoubtedly Chinese luxury brands in the making out there,” he says. “We are keeping our eyes open, and when they arrive on the scene, we will see if we can work with them.”
It doesn’t matter if a cat is black or white, Schaus seems to be saying, as long as it catches mice. “Our objective is to bring a world of luxury to our customers,” he says. “Wherever it may come from.”