Business at Dubai Duty Free (DDF) improved again in the first half of 2012 as the aviation world’s single-location uber-retailer reported 11 percent growth in sales from a year earlier. With the same man — Colm McLoughlin, executive vice chairman of DDF — at the helm in since the first day of operations and a corporate narrative approaching legend status, Executive wanted to find out what the venture is up to now. Guess what? More expansions. 

Dubai Duty Free has an impressive track record of growth since its inception in 1983. What results do you expect to achieve this year?

In our first full year of business, our sales reached $20 million, which was good. Last year on our anniversary day in December, the daily sales reached $24 million, which is a good indication of how far we have come as an operation. We expect our sales for this year to reach $1.6 billion.

Our staffing levels have obviously grown dramatically over the years and we now have 5,000 employees, including 47 of the original 100 staff that we recruited back in 1983. As myself and George Horan, my deputy and president of Dubai Duty Free, are among those 47, I think that we have done an okay job so far.

Have you ever felt concerned that the good times may not last?

I have always been confident that we would continue to grow and do well. Our turnover has doubled six times since operations began and will double again by around 2018. We have had great support from the Government of Dubai and in particular from H.H. Sheikh Ahmed bin Saeed Al Maktoum, president of Dubai Civil Aviation Authority and chairman of Dubai Duty Free. The challenge, and it is a good challenge to have, is to continue to grow our business and ensure that we retain our position as one of the top duty free retailers in the world in terms of our retail offer and our turnover.

In this respect what are the next steps that you plan to implement? You are already the world’s top duty free operator, are you aiming for further accolades?

It is important for us to retain our position as one of the top duty free operations in the world both in terms of turnover and our retail operation. It is also important to us to retain our role as a ‘Superbrand’ and we will continue to invest in our marketing strategy for this. In terms of our retail operation, we have great plans in place for expansion over the coming months. The opening of Concourse A in the first quarter of 2013 will provide us with an additional 8,000 square meters (sqm) of retail space, bringing our total retail offer to 26,000 sqm. The new concourse will be dedicated to the Emirates A380 fleet. So, we are busy with getting our retail area fitted out and are finalizing our product categories for that as well as recruiting an additional 1,300 staff in readiness for the opening.

We have also extended automation within our Distribution Centre from 70 percent automation to 90 percent. This will ensure that from a logistics point of view we are well equipped to receive and issue merchandise across all terminals.

Chinese travelers are said to be avid spenders on luxury and Russia has been another large source of demand for products at DDF. Are these the customer groups and their interest in luxury where you focus your attention?

Dubai International Airport is a major hub and therefore the mix of nationalities using the airport is huge and it is important that we cater to all groups. The Chinese and Russian travelers are important to us of course, particularly in the luxury goods category, but passengers from the Indian subcontinent and the Middle East are also among our top spenders. It is also important for us to cater to different budgets, we sell over 900,000 kilograms [kg] of nuts for example and over 1 million kg of Nido powdered milk every year, so we have to cater to that customer in exactly the same way as we would a customer purchasing a high-end luxury product.

On your 28th anniversary last December you managed to achieve those $24 million in sales that you mentioned earlier; what record do you expect to hit this year?

The $24 million was a great achievement; it means that we sold $1 million dollars worth of goods every hour. We have anecdotal evidence that passengers chose to fly on December 20th in order to avail of the discount and that is fantastic. We would hope to increase last year’s figure by around 10 percent but we will have to see on the day.

DDF has substantial commitments to sports sponsorship, of which horse racing is a personal favorite. So taking this example, how much does your horse racing sponsorship contribute to your overall success and what value can you put on your image and brand development? Are you planning new sponsorship deals?

Our overall sponsorship program includes horse racing, tennis, golf, rugby, powerboat racing and basketball, among others and is a key factor in our marketing drive. We began our sponsorship of sporting events back in the mid 1980s so were probably one of the early pioneers of sports marketing. Our aim continues to be building up our brand awareness, drive footfall to our retail operation and raise the profile of Dubai as a leading sports and leisure destination.

The Dubai Duty Free Tennis Championships is certainly the biggest event that we sponsor and we actually own the two tournaments on the ATP and WTA tours. The fortnight of tennis results in $325.67 million worth of TV exposure for the event, with $170 million of that focused on the DDF brand. So that is a big investment, which has very clear returns as far as we are concerned.

Horse racing is also a great way for us to fly the flag and our sponsorship of the Dubai World Cup here at Meydan is one of the highlights of our racing calendar. We have worked hard to also build up exposure for our other sponsorships including the Dubai Duty Free Irish Derby held in June in Ireland. This year the print media coverage was extensive and the estimated value was around 1.6 million euros ($2.1 million) alone.

We are constantly approached to look at new sponsorship offers, but we cannot be everywhere and we have to turn things down in order to consolidate our existing sponsorships.

For a retailer and a duty free specialist at that, it seemed a bit unusual that you last year created a new division to manage hospitality operations located deep within the land-side of the customs barrier and expand these operations through the Jumeirah Creekside Hotel. What drove these decisions and are you hedging plans for more properties?

The Jumeirah Creekside, which opened in July, is a fantastic addition to our Leisure Division, which includes The Irish Village, the Century Village, the Aviation Club and the Dubai Tennis Stadium. The 5-star hotel is located within the same complex in Garhoud which of course is also close to the airport.

It made sense for us to look at building a hotel that would be the official hotel for many of our events, including the Dubai Duty Free Tennis Championships. We have no immediate plans for another property.

Perfume, liquor and gold are on your list of top-selling products. Are there products that you feel need working on and what are you doing about it? What percentage of overall sales would you like them to contribute?

There have been significant increases across all major categories including perfumes, liquor and gold. With the new concourse opening next year, we will have the chance to increase our categories and add new brands, which we have been unable to do as a result of space constraints. We think that the fashion and luxury product range can be enhanced and this is being looked at in relation to Concourse A.

Although close to $2 billion worth of luxury items have been sold in the United Arab Emirates this year, looking in the windows of shopping malls today will show that luxury retailers in the UAE have redirected their energy to a more minimalist approach, away from the total opulence that dominated their showrooms in the past.

“Since the onslaught of the recession, wary consumers in the UAE have become more price-conscious and, in turn, many have changed their outlook toward luxury products and have taken on a more Westernized attitude to purchasing habits and started to down trade,” Fflur Roberts, head of luxury goods, at market research firm Euromonitor International, tells Executive.

That means that luxury is being tested for its compatibility with new economic realities in the Gulf region. However, this does not mean that luxury sales are faltering in either the UAE or other emerging markets. According to Euromonitor International’s luxury goods research, the UAE currently ranks 21st out of 32 countries covered. 

The four highest-ranking countries, United States, Japan, Italy and France take up almost half of value sales, expected to exceed $302 billion this year globally, a year-on-year real-value gain of 4 percent. 

Overall, the UAE is an example of the growing importance that emerging economies represent for the luxury goods industry. According to Roberts, manufacturers of luxury this year saw much-needed growth from emerging economies at a time of sluggish Western demand. At the forefront of the spending spree, consumers in the BRIC countries (Brazil, Russia, India and China), lavished on luxury in sizeable numbers. While essential goods and middle-class fundamentals top the household buying agenda in these four large economies, luxury sales in the BRIC space increased 4 percent from 2011 and 22 percent when compared with 2007.  

When compared with the growth rates in the BRIC countries, however, the UAE’s crème de la crème by far topped the ranks of those who expanded their spending in the past five years. UAE luxury sales have increased by almost 43 percent since 2007, which in real terms equates to an increase of $581 million, according to Euromonitor. The per capita expenditure of luxury buyers in the UAE is a story in itself. The small country, with the help of visitor spending, is ranked eighth globally by that measure.

The market still has not exhausted its potential but Dubai’s period of economic worries did not leave it unscathed. The fall in real estate prices led to a 19 percent fall in the UAE’s high net-worth individual population in 2009, Roberts points out. “The luxury market in the UAE has a lot of ground to make up to ensure that it does not slip down the luxury market size rankings any further in the medium-to-long term,” he alerts. 

The worry factor should not be too excessive though; luxury sales year-to-date for importers and traders were more akin to sailing the Arabian Gulf on a pleasure yacht than to being tossed around in a dinghy in the Gulf of Mexico during hurricane season. 

An ideal region for luxury

Luxury retailers in the UAE are on course for a good year, according to Consultants A.T. Kearney. The firm’s recent GRDI report and business issue paper “Global Retail Expansion: Keeps Moving on in the UAE” pointed to the size and importance of the UAE markets for Swiss watches and for premium automobiles, citing examples such as Dubai’s imports of between 800,000 and one million premium watches per year and the UAE’s position as the fourth-biggest market worldwide for motorcar maker Rolls Royce. 

When compared with retail malls in large European or North American cities, the first visual impression on the inside of malls in Abu Dhabi and Dubai is that they are teeming with outlets branded by high-end names in jewelry, watches, perfumes, accessories, fashion and the like.   

Majid Al Futtaim (MAF), a big regional player in both development and operations of shopping centers, reports that confidence among its retailers has been boosted by rising consumer spending. 

As of mid-summer MAF’s three shopping malls in Dubai ­­— Deira City Center, Mirdif City Center and the Mall of the Emirates — have witnessed a 10 percent increase in traffic and 15 percent increase in sales year-to-date. 

“Last year alone, Mall of the Emirates welcomed more than 36 million visitors and we anticipate a greater number this year”, MAF’s Senior Director Leasing Fareed Abdelrahman, tells Executive. 

Luxury retailers standing at eye-level with the UAE market say that the demand is well segmented and growth rates differ in specific segments of their product offerings but are increasing throughout.

In the Emirati market for gold jewelry, the 22-karat product lines are sought by buyers, largely from Asia, who think of gold in terms of weight and investment, according to Anan Fakhreddin, chief executive of jewelry chain Damas, which operates 142 stores in the UAE and about the same number in other Middle Eastern markets.

“The 22k segment is very sensitive to price and demand is affected by any sudden price movements, whether up or down,” he says. The purchases of jewelry with 18-karat gold or platinum settings and precious stones, on the other hand are “mostly fashion driven and less of an investment decision,” he explains, adding that annual growth rates in this market segment are 10 to 12 percent.

An important factor for the luxury market is demographics. For Damas, the youth of the GCC population is a huge advantage, Fakhreddin says, because “all the buying occasions are still ahead of the people. In other regions, celebration points and buying occasions are more or less in the past.”

Correlating it to other world regions, he sees the luxury market in the GCC as increasing in importance because of the support provided to luxury by the troika of “strong economies, strong government spending and high oil prices. For all international players, it is a very important and very stable market, growing steadily.” 

The ‘A’ Class 

Prevalence of wealth cannot be wrong in a market where one wants to sell luxury. And although the inside perception of living in Dubai debunks the false stereotype of ‘rich Arabs’ quite easily, wealth is spreading in measurable ways in the UAE. The highest-grossing income group, earning above $150,000 per year, is expected to rise from 23.1 percent in 2010 to 25.4 percent in 2020, according to Euromonitor’s Roberts.

Concurrently, what Roberts calls “the social class ‘A’ consumers” will also get older, advancing from the 35-39 age group into the 40-44 bracket. Such an expanding, middle-age class of affluent consumers with changing luxury needs must be many a high-end retailer’s dream.   

And it is not just the wealthy but even more the aspiring social and economic risers who value luxury and are willing to invest in status. This means retailers simply have to make sure to further nurture the ‘label me’ environment pervading in the GCC, Roberts explains.

“Brands are regarded as a symbol of social status and success. More than a third of residents in the UAE are likely to purchase a luxury product at least once a year, a proportion that is much higher than in many other markets across the world,” he says. 

It also does not hurt one bit that authorities in Dubai have keen awareness of the importance of commerce and have created an entire infrastructure of retail institutions and events, beginning with the Dubai Duty Free phenomenon. To encourage spending, government-backed Dubai Events & Promotions Establishment (DEPE) regularly organizes an expanding events portfolio including the annual Dubai Shopping Festival, Dubai Summer Surprises and most recently Eid in Dubai.

These key events in the retail trade calendar have been successful in promoting Dubai as an international shopping destination attracting millions of visitors from around the world, representing a major boost to the economic, retail and tourism industry, MAF’s Abdelrahman points out. 

Besides new tourism coming from Russia and China, regional shoppers are also big targets for UAE luxury offerings. “We have seen an increase of visitors from within the GCC — notably from Saudi Arabia and Qatar, who are attracted to Dubai’s proximity and broad shopping and entertainment opportunities. These new audiences support our thriving luxury retail offer, and we expect these trends to increase,” Abdelrahman says. 

Good to go farther

Dubai leads not only the UAE but also the rest of the GCC countries in terms of retail space. “With more developments in the pipeline, the overall retail market is forecast to grow to $26 billion at constant 2011 prices by 2016,” reckons Euromonitor’s Roberts, adding that luxury sellers have adapted to changing customer preferences that emerged since the 2008 global economic crisis. “Luxury retailers in the UAE are therefore stocking more affordable luxury items and classic, timeless luxury pieces to cater to the new customer mentality”, he says. 

Indeed, new, if smaller retail space, is spreading in upmarket neighborhoods and these up-and-coming living quarters are sure to include retail of the exclusive kind — not even to mention the one-million square foot (92,903 square meters) expansion announced in February of this year by Dubai Mall, already the world’s largest shopping temple.   

According to MAF, its Mall of the Emirates (MoE) has a waiting list of retailers, including luxury brands looking to establish their presence in the region. Take a walk around MoE and the evidence is obvious, the mall enjoys 100 percent occupancy at rental rates on par with current industry standards. 

Martin Fabel, Partner and Head of Consumer Industry and Retail Practice at A. T. Kearney Middle East, says the GCC region is evolving at hyper-speed, given that its markets are growing three to four times faster than their more developed peers. 

“The GCC’s strong representation in the global index reflects the ongoing opportunities for retailers looking to expand their brands in fast-growing markets. While retail activity here reflects many of the global trends, it also highlights the often regionally concentrated demographic segmentation of the consumer market, the composition of which varies from region to region, demanding a targeted portfolio approach for successful go-to-market strategies,” Dr. Fabel explains. 

In a nutshell, while there may be a point in life when luxury ends for the individual, given that the right strategies are adopted by its retailers and major distribution groups in the luxury space, there is no reason whatsoever to suspect that the UAE would ever run out of new luxury offerings.