PHILIPPINES. When state-run Duty Free Philippines decided to contract out its fragrances & cosmetics business to Landmark Management in early 2004, it put its faith in one of the country’s longest serving and most respected industry executives – Jose (“˜Chim’) Esteban.
“We think we have done a good job for them because we have smoothed out the operational side for them in the Philippines. So we’re no longer talking about basic problems – we’re talking about how to make the market grow.” |
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Founder and owner of Landmark Management Jose (“˜Chim’) Esteban |
Esteban’s company was already active as a concessionaire for Duty Free Philippines – running the fashion business since 1999 – but his roots in the business go back much further than that.
This ebullient, highly popular character was General Manager of Duty Free Philippines when the company was incepted in 1987 (he started in the role a year earlier) and drove its business successfully until 1992. Later he set up duty free operations in the free ports of Subic and Clark before selling up to move into the agency business, an area in which he remains successful today.
Now Esteban is enjoying a new lease of life. Over lunch at the Conrad Hotel during the recent TFWA Asia Pacific show in Singapore he outlined big plans for both the fragrances & cosmetics and fashion sectors to The Moodie Report and said the Philippines duty free market was a channel whose time has come.
“As you know, the concession system in the Philippines is now fully-established. Now that the system is fully in place, everyone is starting to invest in the stores and in the market – it’s made the environment very dynamic. If you walk through the stores today you can really feel the enthusiasm. More people are involved and they’re all putting in their ideas.”
That’s translating into sales. Overall the beauty category is up by around +33% year-on-year with cosmetics (about 40% of the mix) rising by +55% and fragrances by more than +20%.
“We’re improving the basics of the operations; we’re retraining and re-orientating the sales effort and the sales staff; and we’re making some improvement in store flows,” Esteban enthuses. “And this will be followed by extensive improvements in the stores.”
All the retailers at the DFP-controlled locations are committed to investment and improving the physical presentation of the stores, Esteban says.
“We’ve generally had good support from the trade from our vendors,” he notes. “We think we have done a good job for them because we have smoothed out the operational side for them in the Philippines. So we’re no longer talking about basic problems – we’re talking about how to make the market grow. I think that’s a good achievement over the past year.”
Landmark is “focused heavily” on completing a full physical store improvement programme this year. As Esteban notes, with a fixed life concession (three years plus a three year renewal option) “everything has to be front-loaded – so we’re loading all our development work now.”
Terminal three – finally ready to roll
That development translates into major investment in the beauty sector across a number of locations. At Manila’s Ninoy Aquino International Airport the retailer is building a new store in terminal two, while it is revamping the Fiestamall downtown outlet and creating a new Cebu Airport shop. And, most excitingly of all, it is preparing to open a brand new shop in a brand new terminal, the long-awaited controversial terminal three at Ninoy Aquino International, now under government control – the original developer, the Fraport-led Philippine International Airport Terminals Co (Piatco) is currently involved in an arbitration case to recoup its investment.
“We’re also making a statement to the airport and the government that we’re full steam ahead. And we’re confident that by November there will actually be trading going on. The government has always said it is taking strong steps to get the airport operational and they’re doing this.” |
When will the terminal open? “We don’t know for sure but we will open our (fragrances & cosmetics) store by November,” says Esteban. “Michael [Duty Free Philippines General Manager Michael Kho] has been very supportive and asked us to build the shell for him. So we will do that and start in June. Our commitment is to open the main store in November. It’s no good standing around waiting for things to happen. There will be an airport operation there and it’s better to have it ready for trading.
“We’re also making a statement to the airport and the government that we’re full steam ahead. And we’re confident that by November there will actually be trading going on. The government has always said it is taking strong steps to get the airport operational and they’re doing this.”
Today Landmark’s duty free operations include both fragrances & cosmetics plus fashion in Fiestamall; Ninoy Aquino International T1 and T2, plus Cebu Airport and Cebu downtown.
While liquor, tobacco and confectionery remain the leading categories for DFP, both of Landmark’s sectors are growing fast. That growth will accelerate Esteban believes as new stores – and T3 – come on stream. A key focus in future will be to create more individual environments around selected categories and brands. “Everything at Cebu, [Manila] T3 and T2 will be towards segregated categories,” Esteban notes. “Liquor will have its own section, fashion will have its own section, fragrances & cosmetics will have its own section – that’s a trend we see developing throughout the region. Where we can we will build standalone stores, for example in T3, for the major brands.”
South Korean and Chinese spending surges – but ‘shocking’ supplier reluctance
Any supplier unsure about the Duty Free Philippines business would be wise to take a close look at the evolving passenger and spending profile. South Koreans are now the number one customers, Esteban notes, adding: “They are number one in customer count and they have very high spends. As a result we are retraining all of our staff with Korean language lessons and asking all our suppliers to give us Korean translation materials.”
“Brands are always talking about wanting more independent operators but then some of them skew it against us. If the trade wants the operators to improve then they should make the brands available across locations in a timely fashion. If a DFS or a Nuance opens a store they have the brands immediately. What about the independent operator who wants to build a good store but has to stand in line for two or three years for a brand? All I am saying is that we really want to create a very good window for the brands in our stores. We’re making our investments in the outlets.” |
Japanese remain a strong number two while in third position and rising fast are the PRC Chinese. Taiwanese are also important. Collectively they add up to a high value passenger profile, which when linked to the huge Filipino arrivals business, makes the market rich in potential.
The Korean/Japanese emphasis has propelled skincare sales which are currently running at +55% over the same period last year, which was in itself up +30% over 2003. Those results are being achieved despite difficulties in convincing certain beauty houses to supply some brands, a factor which both surprises and irks Esteban.
“We’re trying to bring in some new brands but it is tough – I am a little surprised as to how difficult it is,” he says. One of the reasons he concedes is that perhaps the beauty sector has had a relatively low profile over the years in the country’s duty free industry, such has been the commanding presence – and huge volumes – of liquor, tobacco and confectionery.
He continues: “So for many years, in the eyes of some of the trade, it wasn’t such an important force. I’ve been in the business for a long time and I can see that it was a little neglected. But if you look at the history of the Philippines and how consistent the numbers have been, it surprises me – in fact it shocks me – that we’re fighting so hard to try to sell ourselves to some of the major brands that we want to bring in.
“It’s not easy here but we’re telling them that we’re committed to growing the business – and we think we’re sitting on a gold mine here. The business has been through some bad years but it has shown some resilience.”
That resilience is rapidly turning into buoyancy, driven by the strong Korean and PRC business. Notes Esteban: “The Philippines is a natural destination for these two markets. In the case of the PRC we have a large Chinese population here – all with relationships in China – and the Chinese government has been very bullish about relationships with the Philippines and recently has invested heavily.
“We also think T3 is an amazing opportunity for the brands. Major airport developments just don’t happen all the time. There should be a recognition among the suppliers regarding that fact. It’s a window of opportunity.
“Brands are always talking about wanting more independent operators but then some of them skew it against us. If the trade wants the operators to improve then they should make the brands available across locations in a timely fashion. If a DFS or a Nuance opens a store they have the brands immediately. What about the independent operator who wants to build a good store but has to stand in line for two or three years for a brand?
“All I am saying is that we really want to create a very good window for the brands in our stores. We’re making our investments in the outlets. I’ve been in this business for a long time so I feel I know what I’m doing. I love this category. I just wish there would be a little more mutual respect sometimes. And a little more cooperation.”
Esteban singles out Scental for praise (“they’re very supportive of what we are doing”) and says Landmark is also re-introducing Chanel (“after a long, long time”) with a new store in T2 and further down the line in T3.”
In coming weeks Landmark will open a new 1,500sq ft beauty store in T2, a big improvement on the long-standing temporary outlet. And skincare will enjoy a major focus.
“The beauty of skincare is that it’s a loyalty business”¦ it’s not a fashionable business, unlike fragrance where something can come up today and be zero tomorrow,” notes Esteban. Sales across the retailer’s operations are currently running at 60/40 in favour of fragrances, a ratio that is down to the big fragrances volumes recorded at Fiestamall. “Fiesta is our big fragrance machine, at the airport it’s the reverse,” he adds.
The Philippines flair for fashion
Esteban also expresses satisfaction over the evolution of the fashion business. It’s a tough business, he says – as it is in many airport locations – but adds: “We’re now very stable and we have good profitability. When the Asian financial crisis hit our region the fashion retailers faced the biggest problems of everyone because you have stock which has no value after six months. But we’re now very healthy and we’re aggressively importing new brands again.
“The beauty of skincare is that it’s a loyalty business”¦ it’s not a fashionable business, unlike fragrance where something can come up today and be zero tomorrow. Fashion has become a much more dynamic category – you have to be up to date all the time. Hollywood is defining what’s in and what’s out. So we are consciously going after new categories. A year ago we decided to make a focus on eyewear in our stores and it’s now our number three category – it’s very large for us. It’s a sector where we have great supplier partners.” |
“We’ve had great support from our business partners. It’s a nice industry to work with. People like Ferragamo and Cartier and Hugo Boss are really good to work with – and the 2nd tier brands are also growing. There seems to be a big move towards the casual categories – casual is really big in the Philippines.
“Terminal 3 will be a big opportunity – we’re looking for more space for more standalone stores.”
Esteban says the company is “getting good at the fashion category” but adds with a grimace, “Boy it was tough at the start.” He says that as conditions and trading improve, the company is becoming more adventurous. For example it is about to open a designer jeans bar (a key category) in Fiestamall.
He notes: “Fashion has become a much more dynamic category – you have to be up to date all the time. Hollywood is defining what’s in and what’s out. So we are consciously going after new categories.”
They include accessories, notably eyewear. “A year ago we decided to make a focus on eyewear in our stores and it’s now our number three category – it’s very large for us. It’s a sector where we have great supplier partners. People such as Luxottica and Safilo are very supportive and good at teaching us how to run a business that I don’t think anyone else really knows how to run.
“It’s the fragrance of the fashion brand business – you have US$100 or US$150 retail items”¦ people don’t mind having five pairs. It’s a hot category and it’s easy to deal with because there are only a few vendors.”
Esteban reserves rich praise for Duty Free Philippines which he says has emerged much stronger from the difficulties it faced post the Asian economic crisis. “We have a very good relationship and they are very supportive. We are their fastest-growing concessionaire. DFP has done a good job of re-orientating itself. They’re very responsible in terms of fulfilling their payment obligations etc so it’s been a good relationship.”
Business is “a little flat” overall in 2005 after a very strong 2004 – but overall headed in the right direction. “Going forward the big bright spot for us is China. We’re a natural for the PRC, we’re western – which they like – it’s cheap and there’s a lot of Chinese here”¦ and it’s beaches, beaches, beaches.”
“The Philippines has done many good things to improve relationships with China and they opened a tourism office in Beijing. The tourism secretary has said his main markets are China, Korea, Japan and Taiwan – that’s where he is putting his marbles.”
Chim Esteban has seen the rise and fall and now the rise again of the Philippines duty free industry. It’s a business he cares about passionately and whose best days lie ahead, he is convinced. He concludes: “It’s a business I love to do. The thing I love the most is being able to implement things I have been looking at for a long time. I like to think we have grown up a lot and have a lot of interesting things to do to improve the business.”
When terminal three finally opens later this year, that growing up process will be complete and Esteban hopes that all the major brands will support the fledgling new adult.
MORE ON CHIM ESTEBAN AND LANDMARK MANAGEMENT
Landmark moment for Chim Esteban as he takes on fragrances & cosmetics operations for DFP – 19/02/04
