TRBUSINESS HAS OVERBIDDING REACHED ITS PEAK?

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1 DFS CEO, Philippe Schaus has told TRBusiness that the company believes it bid at the right level, for the perfume and cosmetics tender at Hong Kong International Airport (HKIA), whilst knowing that it was highly likely that someone would bid well above it. Incumbent DFS lost out to Shilla who has picked up both the perfumes & cosmetics and fashion accessories contracts at the airport, while Lagardère Travel Retail and China Duty Free Group partnership (CDF-Lagardère Company Limited) was awarded the duty free liquor and tobacco contract. [Read more on the HKIA contract wins here]. First of all we decided not to bid on the liquor and tobacco; we bid on beauty, Schaus confirmed to TRBusiness this morning. I think the process was managed very well by the airport We have a considerable insight on what s happening in this part of the world; what s happening with the travellers; what s happening in China with the new policy of the government; what s happening to travel retail and the luxury industries and what s happening here in Hong Kong. So using that insight we bid at the level which we thought was the right one, knowing that there was a high likelihood that somebody else would bid well above that, which is what has happened. So no bad feelings, we wish of course the Shilla team a lot of success in this new operation. HAS OVERBIDDING REACHED ITS PEAK? DFS won all three core duty free contracts back in 2011, bidding competitively at a time when traffic and spend levels were admittedly healthier than they have been in the last couple of years thanks to various measures implemented by the Chinese government to crackdown on conspicuous consumption in particular. DFS waived its right to take up its three-year extensions for its separate five-year liquor and tobacco, general merchandise and perfume & cosmetics concessions at the airport, last year.

2 The DFS Beauty store was one of the busiest in the airport when TRBusiness visited in March. International beauty brands on display at the front of the DFS HKIA store.

3 You will remember that when DFS first won the three airport bids in Hong Kong International Airport, one of the incumbents came out in public to criticise DFS for overbidding at that time. Of course we didn t like that at the time, but if you look back in hindsight he was absolutely right. So we have in part also been contributing to the inflation [of airport bidding]. DFS won all three core duty free contracts back in 2011, bidding competitively at a time when traffic and spend levels were admittedly healthier than they have been in the last couple of years. Although DFS is disappointed not to have been successful at HKIA on this occasion, it is neatly shifting its priorities on to new business developments as well as ensuring the growth of its fledgling large-scale downtown gallerias in Venice and Cambodia, in particular. REBOUND FOR DOWNTOWN SHOPS Regarding DFS Group s other business in Hong Kong at its downtown Gallerias Schaus has some good news. We clearly see a strong rebound downtown in Hong Kong and downtown in Macau.

4 DFS will move out of HKIA by the end of this year. In Macau it s clearly driven by the once again growing casino industry. The market is stabilising and the customer has evolved. We re now serving a more fashion-conscious customer. It s much more of a family customer and the business is back on solid growth at least that is what we have seen in the last few months. Hong Kong downtown also, for very different reasons, but we have seen our business come back strongly particularly in the last couple of months there too.

5 Hong Kong International is a huge transit hub.