By Neil Halligan
One of the three Irishmen instrumental in creating Dubai Duty Free and building it into an international behemoth retired last week, ending a 33-year association with the airport retailer. George Horan tells Arabian Business that despite recent challenges he expects the company to grow by another whopping 50 percent in a few years
It was somewhat the end of an era at one of Dubai’s largest companies last week, as Dubai Duty Free’s George Horan stepped down from his position as president of the airport retailer after helping to set it up 33 years ago.
Horan, along with Colm McLoughlin and John Sutcliffe — the so-called ‘Irish trinity’ — arrived in Dubai from Dublin in 1983, with seven other Irish staff from airport retail management company Aer Rianta. Their mission was to establish Dubai International Airport’s duty free retail operation.
The trio stayed on and helped to grow Dubai Duty Free (DDF) into the world’s biggest single airport retail business, with sales figures of $1.88bn last year.
It is a long way from the $20m in sales recorded in its first year of operation, but as Horan admits, it is a story that few predicted when they arrived in the sparsely populated emirate.
“I hadn’t the wildest idea of what was going to transpire over 33 years; I don’t think anybody had really,” Horan recalls.
While McLoughlin has been the figurehead leading the operation as executive vice chairperson, Horan’s contribution to DDF’s success as second-in-command (after Sutcliffe returned to Aer Rianta in 1990) has been regularly acknowledged by “the boss”, the nickname Horan uses for McLoughlin when he briefly interrupts our interview at the company’s headquarters near Dubai Festival City.
“We will miss him very, very much, as he has been here 33 years and has been a tremendous influence on the success of Dubai Duty Free,” McLoughlin says.
Horan has already heaped praise on McLoughlin’s leadership abilities in guiding DDF “through good and bad times”.
He also pays tribute to the leadership of the company’s chairman Sheikh Ahmed Bin Saeed Al Maktoum — “a fantastic boss” — which has helped the company’s incredible growth story over the past three decades.
The combination of Emirates Airline’s growing number of routes and the airport’s rapid infrastructural developments to meet demand have driven the retailer’s growth.
In the lobby of DDF’s headquarters there is a graph showing how the company’s sales have grown. Even from a distance, it is clear there has been a significant jump in sales since 2002, marked by the expansion of Dubai airport with the opening of the Sheikh Rashid terminal.
“It was a huge development at Dubai airport,” Horan says. “All the passengers had to go through the shop in departures, so we had a full footfall through the shop. We were very involved with our suppliers in that concourse, for the first time, I would say, since we started. This was the beginning of the real growth.”
The strategic decision to involve DDF management in each of the airport’s developments also has helped to boost the retailer.
“Once something’s on the drawing board, we’re involved and we can see what’s going to happen in the future. We get our opportunity to have our say as to what we think we should have. Emirates and dnata also have their say and by the end we’re all relatively happy,” he says.
Operating a $2bn company is not as easy as it looks from the outside, he insists, particularly with 6,200 staff to manage, and an ever-changing customer base, largely influenced by global economic circumstances.
Three years ago, a large proportion of DDF’s revenue stream came from high-end Russian passengers, but the falling ruble meant a significant decline in sales in recent years. Last year alone the company reported a $55m drop in spending by Russian tourists.
“We find it difficult. We find it challenging. The passenger mix is continuously changing, for the better and for the worse, I suppose,” Horan says. “For the better because Emirates is flying to more destinations annually and the more places that they go, the more passengers they bring by nationality, which gives us challenges in terms of meeting their expectations.”
Horan says while the Iranians were once Dubai Duty Free’s biggest cohort by sheer number, the wealthy Russians were far better customers in terms of sales revenue.
“They bought with US dollars, cash, and it was easy enough to satisfy them, in as much as, if they bought one they bought ten pieces. They wanted to buy branded products as well,” he says.
Emirates’ growing number of routes into China, however, have helped DDF somewhat compensate for the decline in revenue from other countries.
“Last year, [Russians] were replaced up to a certain point by the Chinese, who came in small numbers but had big spending power. They were a big bonus. About 3 or 4 percent of passengers were Chinese, but 11 percent of our revenue came from them.”
Horan says DDF acknowledged the importance of its growing Chinese customers by recruiting staff members from the East.
“We have over 500 Chinese employees now in the company, spread over four concourses. We couldn’t communicate with them when they came first and they won’t buy unless you can help them to buy,” he says.
“[The Chinese employees] are very important to us and they talk with the Chinese passengers and can easily communicate with them. We are also now taking the Chinese debit or credit card UnionPay card.”
Following a 2 percent decline in sales of luxury goods in China last year, the Chinese government has in recent weeks given its approval for 19 more duty free shops nationwide, as it attempts to claw back some of the population’s 80 percent spend on luxury goods in foreign countries.
While Horan admits it is not welcome news, he says the traffic from China will increase and so too will the spending power.
“Any place that opens where they have access to buy from other ‘duty frees’ will have a negative impact on our business but more and more Chinese are beginning to fly now so the numbers will still increase. While it’s a bit negative in one sense, they will still fly,” he says.
However, DDF is challenged by the weakness of the euro versus the dollar, not only in terms of sales to European customers, but also in relation to suppliers from Europe.
“We have a dollar buying policy from [the suppliers] in Europe. We converted the euro at AED5 to the euro and now it’s only AED4, but we’re still paying them AED5 which costs [us] because they haven’t revised the pricing to us. This is an issue that we don’t talk too much about but we’re struggling with it, because we have to reduce our margins to be competitive,” he says.
While some suppliers have relented on the pricing structure, there are many who are not willing to change the status quo.
“We’re trying to get them to revise the prices into Dubai Duty Free, or else we will go back and buy again in euro rather than dollar. It’s happening with some of our suppliers, but they’re all scared that if they revise their prices back again and suddenly the euro gets strong, we could be as slow to change back as they were with us.”
Despite the challenges, Horan says the future remains very strong, with a significant amount of retail space to be built in the coming years.
DDF’s retail expansion at Concourse D is the latest visual impact of Horan’s influence. He personally oversaw the development of the 7,000 sq m retail space, which he says should be seen as a blueprint for what is to come at Dubai Airport, and the future plans for the existing concourses.
“You’re so close to the gates, they’re all within a couple of hundred yards, but in Concourse A and B you could be half a kilometre away from a gate, which is a daunting task if you have to walk that far, with time being such an important element at the airport,” Horan says.
The two-year construction work in the lead-up to its opening has not led to a positive experience for passengers, Horan admits, but says the success of the operation since its opening in February this year bodes well for future developments.
“It has been a huge improvement and the things that we did badly in Concourse B and C we have done better there. It has led to a very positive response from passengers now. It accounts for 20 percent of our business now through Concourse D already, which is fantastic.”
Those future developments will include a refurbishment of Concourse B and C, but in the interim DDF has had to build temporary outlets to cater for shoppers, particularly in Concourse B.
“For us it’s a big problem because the shopping facility is still there downstairs, but you don’t have to go downstairs anymore, because you’re not coming up the escalator and this is where the footfall is very important for us. We’re now building a new outlet at the end of Concourse B, as you go into Concourse C,” Horan says.
The upgrade of Concourses B and C will include enlarged boarding gates, changes to the air-bridges and a redesign of the DDF outlets.
“It will take over two years to get it sorted out. Concourse A, B, C and D will look identical from Emirates’ point of view and they will totally take these four concourses,” he says.
The growing retail offerings will be matched by traffic at Dubai International, which is expected to reach 100 million in three years’ time, Horan says. In that time, FlyDubai is expected to start to move its operations to the emirate’s second airport, Al Maktoum International Airport, in Dubai South.
“Passenger flow will move to Dubai South where passenger capacity will increase from 5 million to 20 million in 2017 in a temporary capacity. FlyDubai will move there in 2017, which will free-up Terminal 2,” Horan says.
“When they enlarge it temporarily we will have about 7,000 sq m of commercial space. Ultimately, when they open the new building in 2023, we will have about 80,000 sq m. There will be six nodes, as they call it, or buildings, and each building will be about 14,000 or 15,000 sq m of commercial space.”
The expanded retail space will have a significant effect on DDF’s figures, with a 50 percent increase expected over the next two years. “We have revenue of about $2bn and we expect by 2018 that will grow to $3bn. In 2023, who knows where we will be,” he says.
Horan, however, does not believe they will expand into new territories. Previous attempts to secure concessions at airports in Colombo and Beirut proved unsuccessful, and with a sizeable operation of its own to run he says it would require a separate entity to enter the international market.
“It’s very difficult and very competitive and there are some huge brand names out there doing this. We would not be able to compete with them unless we formed a new team, independent of Dubai Duty Free, and just chased after this business. We’re a $2bn company and we’ll be $3bn two or three years from now, and that’s a big challenge that we have to overcome,” he says.
The company will also continue to grow its successful promotion of Dubai through its sports events and partnerships, with $50m spent last year on promotion, advertising and marketing.
The annual Dubai Duty Free Tennis Championships is one of the most successful on both the WTA (women’s) and ATP (men’s) tours. The global exposure over the course of the competitions last year was worth $802m to Dubai’s economy.
The recent Dubai Duty Free Irish Open golf tournament — hosted by former world number one Rory McIlroy — has been a huge success, with its prize fund set to be increased from $5m to $7.8m, making it one of the European Tour’s top events.
Horan leaves the company in good shape and with a solid succession plan. He will be replaced by Ramesh Cidambi, current senior vice president logistics and IT, who will take the title of chief operating officer.
In addition, Salah Tahlak (currently senior vice president — corporate communications) and Nic Bruwer (vice president, human resources) have been appointed as executive vice presidents under Cidambi. Their duties, subject to a further announcement, will cover all aspects of the retailer’s operations, including its non-retail interests under the Dubai Duty Free Leisure division.
The number of changes it has taken to replace Horan provides a sense of the level of responsibility the Irishman has had and just how much his influence will be missed.For all the latest retail news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.