As trade war looms, duty-free operator sees opportunities
ZURICH: As the world frets over a looming trade war, one company sees an opportunity.
Dufry AG, the world’s largest duty-free retailer, would thrive in a more restrictive trade environment, chief executive Julian Diaz said in an interview.
That’s because tax-free airport shops could gain a bigger price advantage over other retailers if governments impose new levies on imports.
“We’re not subject to taxes, we’re not subject to duties — if there are taxes and duties at the border, for us it’s better,” Diaz said. “I hope openness nevertheless prevails. I’m a citizen of the world, and free trade is probably the best thing.”
The Basel, Switzerland-based company sells an array of products — from cigarettes and cosmetics to $45,000 bottles of Macallan 1937 Scotch whisky — through shops in international airports and other border crossings, where purchases avoid trade-related fees as long as the goods immediately leave the country. Discounts to street prices can be as much as 40% on some items.
The United States is scheduled to impose tariffs on $34 billion of Chinese exports today. China has said it will place levies on an equal value of US goods, which would in turn lead to additional penalties from the US.
The European Commission has said it will retaliate against US tariffs on European steel and aluminium with tariffs on American products such as denim jeans and bourbon whiskey.
Dufry is watching Brexit proceedings with similar interest.
With the UK’s departure from the European Union less than nine months away, the two sides have yet to decide on their future trade relationship or the duration of a transition period.
Large manufacturers such as Airbus SE and BMW AG have warned they’ll have to pull investment from Britain if barriers are put up to trade with the EU.
“It’ll be very important for us, because Dufry would benefit from travellers entering and leaving the UK,’’ Diaz said. “Many countries will be impacted.”
Dufry shares rose as much as 1.2% in Zurich yesterday.
Luxury group Richemont bought a 5% stake in Dufry last year and later raised it to 7.5%. As the Swiss company has raised its investment, China’s HNA Group Co Ltd, which bought a 21% stake in Dufry last year, has lowered its economic interest to less than 1%.
The Asia, Middle East and Australia region makes up a mere 10% of Dufry’s total sales, though Asia is the fastest-growing market.
While Diaz says Dufry always considers acquisitions, it’s still consolidating the activities of the past four years.
In 2015, Dufry acquired Italian rival World Duty Free SpA for €2.6 billion ($3 billion), a year after purchasing Nuance Group for some $1.7 billion.
As Dufry awaits international trade developments, it’s getting a boost from a continued rise in Chinese travellers.
“I’ve noticed more middle-class Chinese are visiting Dufry’s airport stores, spending on mass-market items. Instead of watches and jewellery, these new consumers are buying more affordable items.
“There are more Chinese travellers — in fact, by 2020 there’ll be close to 200 million Chinese traveling — and they’re not all millionaires,” Diaz said.