China Duty Free Group lays down a quality long-term marker in Sri Lanka

In late September last year China Duty Free Group soft-opened its cdf Sri Lanka Duty Free store in The Mall at Port City Colombo. The flagship economic development project, jointly developed by China and Sri Lanka, is home to the Chinese travel retailer’s first foray into South Asia.

The Moodie Davitt Report Founder & Chairman Martin Moodie paid a visit in early January and even though there are further additions to the store before the Grand Opening, he was highly impressed by what he saw.

SRI LANKA. It’s a glorious sunny day in Colombo, not a solitary cloud in an azure-blue sky. The similarly bright pink and blue hued Duty Free signage beckons visitors into The Mall, a spanking new retail and restaurant development being opened in phases from Q4 last year.

The Mall forms an integral component of Port City Colombo, a multi-service Special Economic Zone designed to drive tourism, while creating business, investment and lifestyle opportunities.

The Mall is home to two new duty-free stores, the bigger run by sector giant China Duty Free Group (CDFG), which opened last September, and Singapore-based One World Duty Free, which unveiled phase one of its shop on 1 January. Flemingo – whose signs are already up – also hopes to enter the scene once (or if) licensing approvals are given.

While on holiday in Colombo, I am paying a visit to the CDF store, something the company hopes many more foreign travellers will do as the concept becomes an integral part of the Sri Lankan touristic experience.

Provided I bring my passport and travel documents, I can shop duty free here with subsequent pick-up of my goods at the airport. The only limit on what I can buy is the allowance of the country I am travelling to.

Once purchased, my goods are bagged and delivered within two to three hours to the airport.

What makes the concept even more interesting is the fact returning Sri Lankans and foreigner residents can also shop duty free within four days of their arrival in the country subject to an annual value allowance of US$2,000 and certain quantity limits. They can even bring one member of their family with them for an incremental allowance.

There’s plenty here to tempt them. What is most striking as soon as you approach the store is its combination of scale (2,000sq m) and elegance, a step change for Sri Lankan travel retail.

CDFG has a 25-year contract here with the Sri Lankan government, a lengthy tenure that has given the retailer the confidence to invest heavily in high-quality design and fit-out. And that fusion of confidence and investment shows in a compelling, attractive, expansive and well-ranged shopping emporium.

To assuage any fears of diversion into the local market, the purchasing model is impeccably controlled. Arriving unannounced to the store (I was on holiday, after all), I was not permitted to pass through the barriers into the shop as I was carrying neither my passport nor air ticket until I contacted China Duty Free (Lanka) Country General Manager Dimantha Kinigama for a visitor-only clearance.

That level of rigour is vital to establishing the credibility of the fledgling channel. The would-be customer has their passport scanned at a registration counter at the front of the store. The scan is then sent to the Department of Immigration for immediate validation of whether the passport is genuine and if it belongs to a tourist or a returning Sri Lankan or foreigner resident who has arrived within the four-day stipulation period.

When the shopper arrives they are classified into three segments – arriving Sri Lankan and foreigner residents, tourists and diplomats. A foolproof database ensures that allowances are not exceeded (for example, a shopper could not claim their full liquor allowance in both the CDF and One World stores). It’s an apparently rock-solid system that has given the Sri Lankan authorities and brand partners necessary assurance that here is an incremental rather than cannibalistic channel.

Kinigama (a former Nuance India and Dufry Country Manager) and his team at the CDF store are justifiably proud of what the company has created here – a superbly ranged merchandised and designed store, with more products to come in the months ahead.

Already a diverse range of high-end items is on offer, embracing more than 400 internationally renowned brands, including fashion and accessories, luxury watches and jewellery, beauty products, perfumes, spirits, fine wines and global speciality foods. Plus there’s a sizable destination merchandise offer.

Among the multiple pleasant surprises I note, the liquor zone is the standout. It houses over 300 lines, including an impressively eclectic array of single malt whiskies and Chinese spirits (including Chinese whisky). Knowing the popularity of the category with Indian consumers in particular, CDF plans to offer the widest range of single malts in south Asian travel retail and seems already well on the way to achieving that goal.

At the time of the store’s soft opening CDFG said: “This development sets the stage for a significant boost in local tourism. The store inauguration is anticipated to transform Port City Colombo into a thriving hub for business and tourism, catalysing greater economic development and opening new opportunities in Sri Lanka, while further enhancing the strategic collaboration between the two nations.

“The opening of the duty-free store in Sri Lanka signifies CDFG’s continued international development strategy, showcasing its pioneering spirit and innovative approach in exploring new markets like South Asia.”

So far the signs are promising. Although the current customer mix is around 70-30% in favour of Sri Lankans, that is likely to change as the key Indian customer becomes aware of both the shopping opportunity and the extensive product range at Port City Colombo.

All new duty-free shopping models, whether they be traditional airport arrivals stores or hybrid departure/post-arrivals concepts, as in Sri Lanka, take time to settle down. Most departing shoppers to date are first-timers, and the prospect of buying, say a US$100 perfume or handbag and having to wait to pick it up at Bandaranaike International can cause concern that the goods will actually be in place when the traveller arrives at the airport.

Awareness and therefore marketing are key, CDFG management are also hopeful that, as in Hainan, certain non-sensitive goods will be exempted from the airport pick-up model and instead be presented to the bona-fide departing tourist in-store.

Such reservations are not preventing some hefty spends. In early January one Malaysian customer spent US$10,000 on a single botte of an ultra-premium expression of The Macallan.

The expansive range of single malt whiskies – benefitting from CDFG’s buying power and expertise in the category – promises to fuel many such sales in the future, especially given India’s burgeoning interest in single malts and the fact that for inbound travellers the generous liquor allowance (two litres each of spirits, wine and beer) is additional to that at the airport. The same incremental principle applies to perfume (250ml) and beauty (four pieces).

All of this must fall within the US$2,000 value allowance. Current regulations mean the inbound shopper can only avail themselves of the opportunity once a year, meaning if they don’t spend up to their limit within the four-day limit the balance is effectively gone for the year. That may change, however, if moves to allow the total allowance to be spent across multiple visits (as in Hainan) are successful.

Similarly upscale spends are likely in the still-evolving fashion and accessory category, which constitutes approximately 25% of the mix.

With many Indians entering the country to visit the casinos, liquor, premium watches such as Tag Heuer, Rado and Tissot are in high demand, as is consumer technology (a category which will be filled out considerably over coming weeks), particularly Apple and Huawei phones.

Tobacco is available but only for departing passengers. Sri Lankans and Indians are renowned for a sweet tooth and that popularity is well reflected in an extensive assortment of international favourites, complemented by local offers.

With a long-term contract in place and an anchor position in Colombo’s newest touristic (and local) attraction, the future seems bright for CDFG. One of the big tests, however, at least in the short term, is whether the big international brands will fully support the concept.

Early signs are promising but much work remains to be done. Those brands that are uncertain might take notice, however, that while Sri Lanka might not currently be able to compete on a GDP basis with, say, Singapore, the Port City market will be heavily skewed towards Indian consumers in the future.

“The Indians will flock here,” says a senior source. “So the brands need to be here. At some stage the Indian consumers will say, ‘Do you have Louis Vuitton, Prada, Hermès?’ Because that’s what Indians aspire to when they go overseas.

“More Indian traffic will come here for shopping. It’s three hours from Delhi, half an hour from Chennai. Why would you want to go to Singapore?”

It’s an interesting question. And as I ponder it while stepping outside The Mall, blinking into the glare of the blazing Sri Lankan sun, it’s hard to imagine that retail prospects here are not similarly bright. ✈