Duty-free retailer replacing DFS at Changi Airport has to up its game, say analysts

Duty-free retailer replacing DFS at Changi Airport has to up its game, say analysts

DFS Changi Airport duplex
A DFS Duplex Store at Changi Airport. (Photo: Facebook/DFS, Singapore Changi Airport)

SINGAPORE: The company that will take over DFS' tobacco and liquor business at Changi Airport must provide customers with more appealing options to live up to the reputation that DFS has built over the years, said retail analysts.

After 38 years at Changi, DFS announced on Monday (Aug 26) that it will not retain its duty-free liquor and tobacco concession at the airport. Its stores will close when its lease expires in June next year.

Three firms have submitted bids to take over the business - Lotte Duty Free, The Shilla Duty Free and Gebr Heinemann – according to the Moodie Davitt Report, a publication which focuses on airport retail.

READ: DFS to close its tobacco and liquor stores at Changi Airport

Changi Airport is widely regarded as the world’s best airport for wines and spirits, and prides itself on its customer service and exclusive offerings, said senior manager at Nanyang Polytechnic’s Singapore Institute of Retail Studies Angie Ng.

The incoming retailer will have to live up to this reputation.

“They should also take the opportunity to analyse passenger numbers and profiles, as well as leverage new routes and seasonal travel,” she said. “Additionally, they must offer more unique products such as developing a travel-exclusive range.”

Apart from exclusive merchandise, the new retailer also needs to offer “pre-shopping”, said Adjunct Associate Professor Lynda Wee from Nanyang Technological University’s (NTU) Nanyang Business School.

This involves reaching out to customers online so they can do virtual "window-shopping" and be enticed enough to buy items in-store.

“Travel retail needs to rethink their value proposition. It used to be attractive due to difficult-to-access merchandise and brands, competitive pricing due to duty free,” Dr Wee said.

She noted that with the opening of Jewel Changi Airport, travellers now have more shopping options.

TIGHTER REGULATIONS, VOLATILE ECONOMIES

Observers acknowledged that duty-free retailers have their work cut out for them.

Business conditions in the industry have changed, said Ms Ng, who noted that three companies submitted bids for the Changi Airport liquor and tobacco contract this year, compared to six in the previous tender in 2013.

Apart from business challenges such as rising rental costs, technological and economic disruptions as well as exchange rate fluctuations, other factors such as the fast-changing global environment and volatility in major economies play a part as well, she said.

Such challenges are magnified when businesses are unable to adapt and respond quickly enough, she added.

The incoming duty-free operator at Changi Airport will also have to factor in Singapore’s tighter rules on liquor and tobacco purchase.

It was announced in this year’s Budget speech that duty-free alcohol allowance would be reduced to two litres from the current three litres. And from July 2020, all tobacco products in Singapore will be required to be sold in plain packaging with graphic health warnings covering at least 75 per cent of the packet. 

The latest regulation of reduction (in duty free alcohol allowance) from three litres to two litres means more restriction so may cause a drop initially for price sensitive customers,” said NTU’s Dr Wee.

Another challenge is that countries like China are making their domestic duty-free options more attractive to their people, said Ms Ng, so they have greater incentive to buy at home instead of overseas.

“The Chinese government also seems determined to maximise domestic consumption of Chinese travellers by enhancing duty-free opportunities at home. This is certainly a concern to retailers whose sales are dependent on Chinese overseas expenditure,” she added.

“STRONG PARTNER” NEEDED: CHANGI AIRPORT GROUP

Changi Airport Group (CAG) told CNA that it expects the incoming firm to enter the market with its eyes wide open.

"We expect those who are participating in the tender to have factored business conditions in their considerations as part of their proposal to CAG,” a spokesperson said. 

CAG is seeking a “strong partner” with retail concepts to improve the passenger experience for the liquor and tobacco concession, she added.

“From store design and product range to in-store activations and e-commerce strategy, we look forward to robust and compelling proposals, leveraging new technologies and innovations to elevate travel retail at Changi.”

The incoming operator will have to manage 18 stores, spanning more than 8,000 sq m of retail space across Changi Airport’s four terminals.

The tenancy will last six years beginning June next year, and the operator will have the potential to serve more than 66 million international travellers.

Ms Ng said that everyone in this industry will have to remain nimble.

“Business performance can improve if they focus on growing their revenue from sales, and exiting from loss-making locations,” she said.

Source: CNA/ja(gs)

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