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Sat 16 Sep 2017 06:49 PM

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How Dubai Duty Free will retain its title as world's best retailer: McLoughlin

Colm McLoughlin helped launch Dubai Duty Free in 1983 and shows little sign of slowing down. He tells Arabian Business the company is on track to smash its targets this year, and how airport expansion in the city will spur its next three decades of growth

How Dubai Duty Free will retain its title as world's best retailer: McLoughlin
McLoughlin has become a household name in Dubai business circles since he moved from Ireland in 1983 on a contract to set up Dubai Duty Free

It has been 34 years since Irishman Colm McLoughlin moved to the UAE to set up Dubai Duty Free. And he is just as passionate about the company today as he was then.

Five minutes into an interview with Arabian Business at his Dubai office, the executive vice-chairman starts rummaging around in his desk, opening and closing drawers and rifling through sheets of paper.

“Ah-ha!” he exclaims, holding up a bright red Dubai Duty Free-branded retractable pen. He clicks the top and bobs his head gleefully as it plays a recording of the company’s 25th anniversary ditty, Fly Buy Dubai, produced in 2008.

“We’re always doing different things at Dubai Duty Free, and when we were 25 years old we wrote that song,” he says. “Recently, I saw these pens that when you pressed them they played the UAE national anthem. So we decided to make a pen with our own national anthem.” He plays the tune again and laughs heartily. Arabian Business uses the pen throughout the interview and takes it home with us.

McLoughlin, now in his 70s, is a household name in the Dubai business community, attracting warm admiration from expats and Emiratis alike. The fact that he has retained a humility and down-to-earth sense of fun is remarkable given the high profile circles in which he moves.

The walls of his office are crammed with photographs of him with sheikhs, dignitaries, staff and others – everyone from Dubai Ruler Sheikh Mohammed bin Rashid Al Maktoum and Dubai Duty Free chairman Sheikh Ahmed bin Saeed Al Maktoum, to government officials and long-standing colleagues.

Emirates chairman and CEO and Dubai Civil Aviation Authority president Sheikh Ahmed also chairs Dubai Duty Free

He was one of a team of ten from Aer Rianta, part of the Irish airport authority, contracted by the Dubai government to set up Dubai Duty Free at Dubai International Airport (DXB) in 1983. When the company opened six months later, McLoughlin was asked to remain as general manager, helping Dubai Duty Free to achieve sales of $20m in its first year of business.

He became managing director in 1995 and continued to oversee its growth, which peaked at $1.9bn of sales in 2014. Annual sales dipped slightly to $1.87bn in 2015 and then $1.82bn last year (reported in dirhams in January by Dubai Duty Free as AED6.67bn) but McLoughlin insists this is a solid turnover.

“We found the performance very satisfactory. A few things happened at the airport – at all airports – that affected business,” he says. First, DXB recorded 83.6 million passengers last year, overtaking London Heathrow as the world’s busiest airport, and McLoughlin notes: “Congestion at any airport affects how long people spend in themretail areas.”

Currency volatility was the second factor. “In the last two years we’ve seen the declining value of the euro and pound sterling, which tended to make things more expensive for customers coming through.”

In addition, the company’s supply purchases are typically made in US dollars, which meant things became more expensive. “We had to go into long discussions and negotiations with suppliers to reflect the changes in currency exchange to us. So that affected our business a bit last year.”

The company made some adjustments to “trim the cloth”. While there were no redundancies, McLoughlin says, Dubai Duty Free introduced controls on paid overtime, new shift timings, and reduced media and advertising spend.

He declines to reveal by what percentage but says the company ensures that no more than ten percent of its top line annual revenues – which last year stood at AED660m ($179m) – is spent on the promotions, advertising and sponsorship for which it is known, including the Shergar Cup at Ascot and Dubai Duty Free Tennis Championships.

The company also estimated it would lose around $2m of 2017 turnover as a result of the US laptop ban earlier this year. “A spokesperson said at the time of that move: “The electronics ban will mean passengers cannot carry on board electronic items, including those purchased in duty free, that are larger than the commonly available smartphone.”

Despite such challenges, McLoughlin is confident 2017 will be stronger than last year. He reveals that, eight months in at the time of our interview, the company had achieved sales 2.5 percent over budget. This equates to AED107m ($29.1m) of additional turnover compared to 12 months earlier. Perfumes and cosmetics remains the best performing product category, accounting for 24 percent of sales, followed by alcohol at 12 percent and cigarettes at eight percent.

Dubai Duty Free achieved a record $1.9bn of annual sales in 2014

“We expect to end the year very positively,” he beams. “We expect to surpass our AED6.7bn [$1.82bn] budget to achieve turnover of AED6.8bn [$1.85bn] by the end of 2017. We’re giving ourselves ten out of ten.”

Dubai Duty Free is in good shape when compared to other duty free operators. McLoughlin – well known for his capacity to reel off numbers with incredible speed and accuracy – says average sale per departing passenger is about $38 per head, while the average penetration rate (the number of departing passengers who purchase something) is around 34-35 percent.

“Other big airports are happy to get ten percent,” he claims.

Further, the income Dubai Duty Free generates across its retail space has been estimated at $70,000 per square metre per annum.

“I don’t want to sound boastful, but that is higher than for the Apple Store on Fifth Avenue, New York (considered to be the world's best). This is why we’re kicking well above our weight,” McLoughlin says.

There are other reasons. “In comparison to the duty free industry generally, we market ourselves more and promote Dubai and Dubai Airports Group in our marketing and sponsorship campaigns. We offer good value to customers, good service, have a superstar of a chairman in Sheikh Ahmed, and the best team in the duty free industry in our staff.”

The company gets “good feedback and support from the government”, he adds, clarifying that he does not mean financial support. “It’s the other way round, we are in fact financing a lot of the infrastructure building at the airport.”

The executive vice-chairman predicts significant growth in sales to $3bn by 2022, driven primarily by the expansion of Dubai’s second airport, Al Maktoum International (DWC).

“The airport’s capacity at present is five million passengers; in less than one year it’ll be 26 million and by 2022, there will be a new terminal building in place, two new concourses, a six-track underground passenger rail system, three runways and capacity for 135 million passengers,” he says.

By then, Dubai Duty Free will have 80,000 square metres of retail space across DXB and DWC – more than double the 36,000 sq m it operates at present. Given that the company currently does 74,000 transactions each day – adding up to 27 million in a year and 74 million items of merchandise – it is not difficult to envisage the huge growth potential.

No wonder McLoughlin is so optimistic.

Dubai Duty Free Tennis Championships is now in its 25th year

However, global politics, economics and consumer trends bring changes the company must face. Tighter security measures at airports have prompted some airlines to shrink the amount of luggage permitted onboard, affecting duty free sales. For Dubai Duty Free, it has hit sales of weighty items such as Nestlé’s Nido powdered milk, sales of which dropped 40 percent in the last eight months, according to McLoughlin.

“Airlines increasingly want to charge customers to take weighty confectionary and other products on board, and customers do not want to pay that so they come back for refunds and sales of certain categories have dropped.

“We’re in discussions with some of our suppliers about having, for example, one kilogram packets of Nido instead of 2.5 kilo ones, to mitigate against this. We are not necessarily stopping selling such products, just in different portions.”

The introduction of taxes in the GCC will also bring changes. McLoughlin reveals that Dubai Duty Free will be subject to the UAE’s new excise duty on ‘harmful products’ sold to arriving passengers at DXB, although goods sold to departing passengers will be exempt.

Dubbed a ‘sin tax’, excise duty will be applied at a rate of 100 percent on tobacco and energy drinks, and 50 percent on fizzy drinks, from October 1. “We don’t really mind,” McLoughlin says. “It will provide funding for the government to do new projects, but secondly, if cigarette prices double both in our arrivals duty free and downtown, we will still be good value in comparison to downtown.”

He says Dubai Duty Free will be wholly exempt from the incoming value-added tax (VAT), providing the company with a competitive advantage. “We see a very positive thing in it because Dubai Duty Free will be exempt from VAT, which means the value perceived by the customers will be better. So we’re not scared of VAT at all.”

McLoughlin is also keeping an eye on changing passenger trends. “We’ve noticed a considerable upsurge in Chinese traffic since the UAE government introduced visa-on-arrival for Chinese visitors last year,” he says. He adds that incoming traffic from China is about 5.4 percent of total traffic, but accounts for around eight percent of total Dubai Duty Free sales.

“We now have an agreement in place with CTrip, the biggest travel agency in China, where tourists get special discounts with us, and we were among the first in this region to accept China UnionPay credit cards.

“But these are trends that change all the time. Ten years ago it was traffic from Russia, then this died away because currency exchange rates made it expensive for them. This has reverted a bit now and traffic has started to build up again.

Dubai Duty Free Tennis Championships is now in its 25th year

“The reason I started that ramble,” McLoughlin adds, “is to say that we have 570 Chinese staff at the moment, who have helped us run Chinese promotions and assist customers.” He concludes his point by saying ‘Happy New Year’ in perfect Chinese.

He regrets never having learnt Arabic during his time in Dubai. “I wish I had. But we came out here for six months; we didn’t think we’d still be here all these years later.”

As one of the emirate’s longest standing CEOs (“Only because I’m old!”), McLoughlin says he has thoroughly enjoyed his life in Dubai. After recalling his first few rounds of golf in the emirate, dragging a piece of astroturf across the sand and referring to the ‘browns’ instead of the ‘greens’, he continues: “I play golf, I ride a bicycle, I think I work hard, I think I’m approachable.

I think I’m genuine in saying that all our staff are equal, and they can come and talk to me whenever they want.

“We don’t see ourselves as unique. When we arrived there was no Nakheel, no Emaar, no Emirates airline. We are part and parcel of the whole Dubai story and just one of the things that has grown up here. In the past few decades, the population has grown from 250,000 to three million, and it is our job at Dubai Duty Free to capitalise on that.”

It certainly has, with long running promotions, prizes and lucrative sponsorships of national and international events helping to put Dubai on the map. McLoughlin claims the media value of the Dubai Duty Free Tennis Championships, now in its 25th year, was worth $830m last year, had Dubai gone out and bought the comparable television and media coverage.

Meanwhile, Dubai Duty Free’s other assets, the Irish Village and Jumeirah Creekside Hotel, continue to perform well, he says, with the former opening a second outlet in the Dubai Parks and Resorts complex last year, and the latter achieving 86 percent occupancy in August. McLoughlin says Dubai Duty Free would invest in other hotel assets in Dubai, but no talks are ongoing at present.

Dubai Duty free is known for being a cohesive company that still employs 31 of the original 100-strong team with which it launched, while 265 staff out of 5,900 have been with the company for more than 20 years. McLoughlin says he has not hired a senior person for 18 years, promoting from within to keep staff turnover low, at around 6.3 percent, and loyalty high. There is a Dubai Duty Free choir, band, sports clubs and bowling competition – “We are very much that kind of company,” he says.

But what happens when he eventually retires? He says his successor is likely to be someone from the 15-strong executive ‘Dream Team’, as it is known within the business, including such senior staff as fellow Irishman Bernard Creed, who is senior vice-president of finance, COO Ramesh Cidambi, Nic Bruwer, executive vice-president of commercial, and Salah Tahlak, executive vice-president of corporate services.

One thing is for sure: whoever takes on the role has big boots to fill. Shortly before this article went to press, McLoughlin won CEO Magazine’s Lifetime Achievement Award – just the latest in the list of 590 awards he or the company have scooped in its lifetime.

His replacement must also maintain the strong bond with Sheikh Ahmed and the Dubai government, and continue to generate dividends for holding fund the Investment Corporation of Dubai (ICD). For now, though, McLoughlin holds the reins.

At the end of our conversation, he asks: “Did I talk too much?” It goes without saying that there is far more that could be discussed with the person that has become almost as much of a Dubai institution as the Irish Village he runs.