US. DFS Group’s new contract to operate duty free and duty paid merchandise concessions in all passenger terminals at Los Angeles International Airport (LAX) has been ratified by the Los Angeles City Council.
DFS will now operate the concession for ten years with three additional one-year options.
Earlier, a strong legal challenge by the third-highest bidder (based on overall financial and technical offer) The Nuance Group to DFS Group’s recommended bidder status was rejected by the Los Angeles World Airport (LAWA) Board after consultation with the City Attorney.
Under the terms of the agreement, DFS will be required to design, construct and operate all the duty free merchandise concessions throughout LAX, including a total of 13 stores consisting of approximately 37,600sq ft.
 |
Click on the above to view the enlarged image (then hover over graphs with your cursor and click for full detail) |
Notably within that square footage, the New Tom Bradley International Terminal (New TBIT) currently under construction is expected to have a single 14,000sq ft store and a 9,900sq ft multi-unit in the core (or great hall) area of the terminal.
 |
Terminal 2, the next busiest international terminal at LAX, will have an area totalling approximately 4,800sq ft. Terminals 3, 4, 5, 6 and 7 will each have one duty free shop with an average 1,160sq ft.
DFS also will have shops in Terminals 1 and 8 under the agreement, but these shops will begin operations as duty paid retail stores until airlines schedule international departing flights from these terminals. DFS will have approximately 7,900sq ft of storage space in the ramp level of TBIT.
Revenue to Los Angeles World Airports will be the greater of a Minimum Annual Guarantee (MAG) or a Performance Rent, which is comprised of a Percentage Rent and a Contingent Rent.
For each year under the agreement, the MAG will be the greatest of the following: (1) US$30 million per year in each of the first two years and, thereafter, US$33 million increasing by an annual consumer price index (CPI) adjustment; (2) 90 percent of the prior year’s rent payments to LAWA, unless, beginning in the third year, international enplaned passengers at LAX decrease by more than -20% from the prior year; or (3) US$6.25 per enplaned international passenger beginning in the third year and, thereafter, increased by an annual CPI adjustment.
Under the Performance Rent methodology, a Percentage Rent, based upon the aggregate sum of the total gross sales in each of five product categories multiplied by each product category’s percentage rate, is added to a Contingent Rent, which is equal to 10% of the gross sales exceeding US$175 million in any given year.
The agreement calls for DFS to market and sell traditional duty free merchandise, such as spirits and wine, fragrances, cosmetics, and tobacco products. In addition, DFS will have electronics and fashion-branded boutiques, as well as high-end, specialty duty free stores offering international brand-name merchandise.
 |
DFS has operated the duty free concession at Los Angeles International for many years |
