Free agents

Global superbrand Dubai Duty Free is the world’s leading airport retailer and a US$1.4bn success story. Managing Director Colm McLoughlin reveals how a little Irish charm helped launch an organisation that has set an astonishing international benchmark

Consider this: at Dubai Duty Free (DDF), over one million bottles of perfume are sold airside every year. That’s enough to fill an entire football stadium.

It’s no exaggeration to say that DDF has set the benchmark for other global operators. The largest single airport retail operator in the world for the last three consecutive years, in terms of turnover, in 2010 its Dh4.66bn (US$1.27bn) income pushed Seoul Incheon and London Heathrow into second and third places in the world duty-free league table.

Irish roots
The story began when DDF Managing Director Colm McLoughlin arrived in Dubai in the summer of 1983 as part of a delegation from Aer Rianta – operators of duty-free at Ireland’s Shannon Airport, where the tax-free concept was born thanks to a man called Brendan O’Regan – widely considered ‘the father of duty-free’.

Shortly after the Second World War, O’Regan convinced the Irish government that the transit area at Shannon should not be considered part of the state. It wasn’t a popular argument, but he was persuasive, and as a result there was no tax levied on goods sold to international transit passengers at the airport.

Fast-forward to the early 80s when His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, was UAE Defence Minister with responsibility for Dubai’s airport. Decreeing that Dubai Airport needed to “be the best”, he began putting the enablers in place. For the upgrade plan, the Director-General in charge at the time, Mohi-Din Binhendi, had been considering a new, improved retail sales area in the airport, when he was approached by Aer Rianta.

One of the company’s managers, Michael Geoghagan, had been transiting through Dubai and read an advertisement requesting airport fire tenders. “We can’t provide the fire tenders,” thought Geoghagan, “but we could help them with a proper duty-free operation!”

The Irish were clear industry leaders and, after visiting Shannon, Binhendi sensed Dubai could make duty-free into a major business. He had already spotted an energetic and knowledgeable young man, the manager of the Free Shop at Shannon, and asked for him to join the Aer Rianta team invited to Dubai to hold exploratory talks. So Colm McLoughlin joined project leader, Aer Rianta Financial Director Michael Hanrahan, and flew to Dubai for meetings in July 1983. The result: a recommendation to end the existing retail concessions at the airport and set up an in-house duty-free operation.

New beginnings
On December 20, 1983, the new DDF opened, offering high-end goods at value-for-money prices, with first-class service – watchwords that still drive the operation 28 years on. On that first day DDF took Dh147,000 (US$40,000) and a turnover of Dh73.5m (US$20m) was the first year target. On DDF’s 27th anniversary, 20 December 2010, sales on that day alone reached Dh66.7m (US$18.5m)!

After opening, Binhendi offered Colm McLoughlin a two-year contract to stay and run the new operation. He had impressed and was keen to take on the challenge.

McLoughlin recalls Dubai in the early 80s: “Back then the airport had 3.5 million passengers, and there were only around 200,000 people in the emirate in total.”

Today, Dubai International – DXB – is one of the world’s key aviation hubs and, in its 50th anniversary year, annual passenger numbers at the airport will power past the 50 million mark. More than 130 carriers operate at Dubai International, serving 220 destinations around the globe. Meanwhile, 260-odd awards later, DDF has become the biggest airport retailer in the world with an income well in excess of US$1bn.

Setting a global benchmark
Sales have doubled over the last six years alone, and in 2010, the average sale was around Dh183 (US$50) per head, eclipsing the typical sum generated in most international duty-free operations, Dh73-91 (US$20-25).

The ‘penetration figure’ is also an eye-opener. “In typical duty-free terms, if you get 16-18 per cent of passengers spending, then the operator is very happy. Here in Dubai, 48 per cent of departing passengers spend at duty free.”

The operation has taken full advantage of Dubai’s determination to position itself at the centre of world aviation and travel.

The joined-up thinking comes from the top: from the leadership and vision of HH Sheikh Mohammed, and from the ongoing guidance, help and support of HH Sheikh Ahmed – affectionately known among the international airport community as ‘the aviation sheikh’.

HH Sheikh Ahmed sits atop Emirates Airline, the airport and duty-free. An inspirational leader, he is noted for his support and quick, bold decision-making.

McLoughlin agrees. “We are owned by the government, of course, but my boss, HH Sheikh Ahmed has been a superstar and a great supporter. He has always let us go for it.”

Business focus
To achieve such growth and international recognition, it has been necessary for DDF to be a great business. Thanks to McLoughlin and his team, it was run well from the very beginning. Indeed, today, DDF is even a case study in Harvard Business School’s marketing programme.

And while DDF has “kept things simple, always promoted Dubai”, and never changed the logo, it has achieved many firsts along the way.

Early on, DDF identified sports sponsorship as a great promotional opportunity and became a pioneer in the field. “We invest three per cent of total sales by putting it back into promotion and advertising,” says McLoughlin. “We are very good marketeers.”

Creating international yardsticks for memorable promotions has also been pivotal to DDF’s success.

Back in 1989, DDF introduced its first ‘Finest Surprise’ promotion, initially intended to be a one-off opportunity to win a top marque luxury car. The draw was such a success that the promotion was made into a regular feature on the airport concourse. To date, 1,500 cars have been given away to travellers from 69 countries. Normally 1,000 tickets are offered for sale, priced Dh500 (US$136), although 2,000 tickets are offered when special cars are the prizes. The longest-running duty free promotion in the world, its success has been recognised in the International Frontier Awards, winning ‘Best Marketing Campaign’.

Launched in June 1999, the Millennium Millionaire works along similar lines, with Dh3.6m (US$1m) on offer to the winner. DDF has already made 118 millionaires through the promotion. In October 2009, DDF went one step further and introduced the ‘Double Millionaire’ draw.

Constant growth
Today, daily average sales at DDF are a whopping Dh52.9m (US$14.4m), but McLoughlin insists that the 18,000 square metres of selling space at the airport “is not enough”.

The DDF Managing Director will not have too long to wait: more retail space is coming, as Dubai and its airports expand. “We expect the retail business to double in the next six years, and DDF expects to take on an additional 2,000-3,000 staff.”

And there is the new DWC-Al Maktoum International airport. This already has 1,500 square metres of dedicated duty-free sales space ready to open when passenger traffic begins. The long-term plan is to have 64,000 square metres of retail space, a massive uplift in terms of stock requirement and staff and, hopefully, sales.

The sales of the top 10 confectionery items weigh in at 20 tonnes per day. DDF sells three tonnes of nuts every day, and three tonnes of gold every year.

Bearing in mind the speed of growth, McLoughlin’s command of the real detail of his DDF operation is extraordinary. No wonder then that he picked up a prestigious Lifetime Achiever award from travel retail title Frontier magazine – only the second man to win it. Fittingly, the first award was made to Brendan O’Regan, the man who started it all.