Interview: Philippe Schaus on DFS Group’s ‘third wave’

“The winds and the waves are always on the side of the ablest navigators.”
–Edward Gibbon

“To some degree we were riding waves in the past. I think the next wave is one we have to build ourselves.“

Philippe Schaus Chairman & CEO DFS Group

[Hard times in Hong Kong, a makeover in Macau. Visionary in Venice, culture in Cambodia. These are both testing and tantalising days for DFS Group as the luxury travel retailer adapts to fast-changing conditions in its traditional heartlands and embarks elsewhere on two of the most exciting projects in its history. Chairman & CEO Philippe Schaus told Martin Moodie during the TFWA Asia Pacific Exhibition in Singapore last week that the retailer must help shape its own destiny.]

“It is fabulous… nothing short of fabulous… it’s really the best store DFS have ever done.”

Coming from the Chairman & CEO of the world’s leading luxury travel retailer, that’s some claim. But DFS boss Philippe Schaus believes that the retailer’s recently opened store in the historic Cambodian town of Siem Reap sets a new standard in travel retail.

The retailer’s T Galleria Angkor, housed in a sublime Khmer architecture building shared with the Angkor National Museum, was soft opened in March. Further phases will be unveiled in coming months, culminating in a Grand Opening in late June or early July.

The store offers “an infinite array of possibilities”, Schaus says, to make it an intrinsic part of anybody’s visit to Siem Reap. He describes it as a “human-sized store”, one where the cultural context demanded a focus on quality rather than on scale. “It’s a great mix of local products, which we have developed together with local artisans in Cambodia, and many of the major luxury brands.

“It’s adjacent to the museum, and also offers lots of food products and many gift items. It’s a great, great store.”

The retailer’s learnings from the shop have been rapid and surprising. Encouragingly the offer has appealed to a wide range of nationalities – not just the high-spending North Asians from China, South Korea and Japan but also Europeans and Americans.

“That’s because it’s such an oasis of culture, luxury and quietness in a noisy city,” says Schaus. “As we progress… we realise the sky’s the limit for the store. But we also realise how much work we still have to do with the hotels, the travel agents, the tuk-tuk drivers… with all sorts of people… with the museum, of course, and with our local partner.”

It’s still early days, with around 75% of the major boutiques and the restaurant (a critical element of the mix) still to open, but Schaus is encouraged by the strong week-on-week growth in visitors from an initially very low base. The store is fast becoming an integral part of Siem Reap’s tourism sector, he notes: a return to DFS’s roots in terms of the pioneering role its stores played in developing tourism in locations such as Guam and Hawaii.

FIELD (AND CITY) OF DREAMS

As we revealed last week, DFS Group is poised to unveil the first phase of a major expansion of its City of Dreams store in Macau. The project is being developed in stages, with the first set to open in early June. “It’s a massive expansion of the store we already have in Macau – the space will be multiplied three times,” Schaus says.

The first phase is dedicated to fashion and part of the beauty offer. The balance of the beauty department, watches & jewellery and DFS’s first real foray into a generic footwear offer will follow in subsequent phases.

A major opening event is slated for September, with the whole project to be complete by year-end. “What makes this so special is that for the first time we will have what you could call a luxury department store in Macau,” says Schaus. “We’ve moved away from the mall feel to more of a department store feel with, for example, a big open shoe space and a walk-through beauty space. It will have a men’s floor and a women’s floor, and more cafés mixing up with the rest of the retail.”

Schaus says that in the building of the large-scale Macau integrated resorts retail has typically been an afterthought, usually flanking the core casino offer. This is very different, he points out. “Here, the most striking features will be on the retail side – so retail is becoming the hero of the property.”

Asked whether the heavy recent downturn in the Macau business had affected DFS Group’s commitment there, Schaus replies that the company’s belief remains “unwavering”.

“Remember, it went down from highs that were incredible,” he comments. “For many of the brands, the stores they have with us at The Four Seasons are among their ten best worldwide. For many of the brands their Macau business is bigger than their Russian, Brazilian and Indian businesses. Yes, sales went down sharply because of the gambling [decline], which had been driving the business; but it remains an extraordinarily important business for most of the brands there.

“However, we did adapt the concept because of the changing situation. So while we were [initially] intending to do something more akin to Macau Four Seasons – meaning more of a mall – about a year ago, we then pulled out our plans again and decided to revisit what we were going to do.

“We decided to create much more of an eclectic, department-store feel, and more interaction with the customer – because we realised the customer was not going to be who we expected. It’s a different customer.

“Where there’ll be a huge change is in fashion. We’ll have large spaces that will be multibrand – for fashion, accessories, and shoes – so it is completely different.

“Because of this multibrand format we will have many more brands in the building than we have anywhere else. So we’re talking to many brands we’ve never talked to before, and are really expanding the offer in terms of diversity.”

Schaus dismisses any prophets of doom around the future of Macau’s travel retail sector. He cites the performance of DFS’s two beauty stores there – T Galleria Beauty by DFS at Macau Galaxy and another at Studio City. “Both stores have, to our surprise, been overperforming versus our plans. And significantly so. That is in line with the observation that the most resilient category right now in the world of luxury is beauty.

“We are very happy with the concept of these two stores, which are also more dense as well as being luxurious and energetic. They’ve been working very well.”

HARD TIMES IN HONG KONG

Hong Kong may be just an hour’s ferry ride from Macau, but its retail performance (not just DFS’s) could be a million miles away. DFS has not been immune from the change in visitor and spending profile so continuously documented in local and world press in recent times.

The challenges vary by store. T Galleria by DFS in Chinachem Golden Plaza, Tsim Sha Tsui East is a pure conducted tour store, whereas its counterpart in Lippo Sun Plaza in Canton Road is a pure FIT store. The commonality is that both are targeted solely at the tourist. And in recognition of the changing profile and needs of that tourist, DFS has been evolving its offer fast.

At Chinachem the focus has been on diversifying the range – and the price-points. An additional floor called The Marketplace has been opened, offering “more accessible” beauty products, food, gifts, fashion and accessories to complement the traditional range. “That has been relatively successful, even though the overall business has been difficult,” Schaus notes.

At Canton Road DFS has experienced success with ‘PIT’ [package individual traveller] customers, which the company describes as the fastest-growing segment among Chinese tourists. Such individuals use the services of a travel company to purchase multiple travel products – a combination, for example, of airfare, hotel, sightseeing tours, show tickets, transportation, in-market attractions and so on – but set their own itinerary.

DFS has nurtured such customers through its increasingly strong relationships with Internet travel agents which, Schaus notes, has been a growing pattern within the business. Here the performance has definitely been better than elsewhere, underpinned by a more energetic, marketing-driven approach towards the beauty floor and the shop windows on the street.

“All the work we are doing with PIT customers through Internet travel operators, who bring us a growing part of our business to the store, has meant that that store has been doing well.”

T Galleria Beauty by DFS in Hysan Place, Causeway Bay is, as the name suggests, a pure beauty store. It also differs from its Hong Kong DFS peers in catering largely to local customers. When The Moodie Davitt Report visited the store recently it was packed with trendy young women seeking the latest in beauty products and treatments.

“It’s very busy,” says Schaus. “There’s lots of traffic, but still some work to do there. We’ve seen a reduction in the number of tourists in that part of the city. So we’ve also been working on the adjustment of the product offer to a different customer.”

Hong Kong International Airport (HKIA), where DFS holds all three major concessions (airside general merchandise, beauty and liquor & tobacco) is a different, and more difficult, proposition. Total passenger numbers have continued to grow, but the propensity to spend hasn’t – most notably, of course, among Mainland Chinese.

“It’s been a different mix, with more local customers, less Chinese travellers, more transit passengers. So, overall, a mix which has not been positive for our business,” says Schaus. Airport Authority Hong Kong has done its best to support its retailers by facilitating a wide range of activities and promotions as well as physical transformations of space. But, he notes, the situation remains “very difficult”.

The single bright light has been what Schaus describes as the “better-than-expected” performance of DFS’s two stores (pictured below) at HKIA’s Midfield Concourse, which opened last December. The two shops embrace over 5,800sq ft of retail space, offering an assortment from DFS’s “five pillars of luxury”, across general merchandise, beauty & fragrances, and wines & spirits.

“That is a positive situation in otherwise a quite difficult business situation,” says Schaus. “And we know that’s the case for almost everybody who’s retailing at HKIA.”

PREPARING A VENETIAN VISION

If Hong Kong is all about coping with crisis, Venice is a matter of delivering on a far-sighted vision for an extraordinary project.

As reported, in late summer DFS Group will open in the historic Fondaco dei Tedeschi building on Venice’s Grand Canal, in partnership with the Benetton family-controlled Edizione.

DFS will combine retail, cultural and entertainment in what it views as “a new destination for culture and commerce” on the famous Grand Canal. The newly restored 13th century Fondaco dei Tedeschi building will feature 7,906sq m of retail space – and it’s clear that Schaus can’t wait to get started.

“We just made the handover from the landlord. Edizione has been working with Rem Koolhaas [Dutch architect and architectural theorist –Ed] to transform the hardware of the store, to stabilise the building, to bring in the escalator, and to redo the entire glass skylights. So, all that is done.

“So we have taken over and we are now working with our architects, Jamie Fobert, and our people to start building in the different shops, because we only have a few months to go. We are on track, and should be opening at the end of September as planned.”

How big a step change is this for DFS from anything the retailer has done in its history?

“Oh, it’s a huge step change,” Schaus replies. “Opening in Europe is a big one for us. And even though many of us are Europeans, Europe is a different planet from where we are used to working!”

“What is also new, of course, is working in a 13th century building, with all the associated restrictions. And it’s new is to work in a place where you have to bring everything in by boat. So it’s quite a challenge, but we have incredibly motivated teams.

“Whenever you go into that building you are just blown away. Every time you go there are new things which have happened, and it’s going to be fabulous. It’s going to be something unheard of, not only in the world of travel retail but anywhere.”

It’s almost certainly the highest-profile development in DFS’s 56-year history. The eyes of Venice, Italy, the luxury industry and the travel retail sector will all be on the project, but Schaus sees that as a healthy pressure.

“It’s so iconic, and at the same time we know there are 20 million people visiting Venice. Of course, a lot of them are not luxury shoppers; but you have all nationalities there.”

DFS has built its commercial model with conducted tour customers as the prime target, but Schaus also believes “the sky’s the limit” in terms of a wide range of nationalities, including tourists from India, the Middle East, North America and Latin America.

“There are so many things we can do in a place like that,” he comments.

MAKING WAVES

The dual Venetian and Cambodian projects are exciting enough in their own right, but they are also poised to turn into a cultural triangle courtesy of the famous La Samaritaine on rue de Rivoli, Paris. There DFS parent Moët Hennessy Louis Vuitton (LVMH) last year won official approval of building works required for building’s renovation.

As reported, DFS is playing an important consultancy and advisory role to the €460 million project, which involves a hugely ambitious transformation of the 860,000sq ft complex.

At the TFWA Asia Pacific Conference last week in Singapore, Schaus spoke of “blending retail with authentic tourist experiences, while fostering an enhanced Sense of Place”. Siem Reap, Venice and, eventually, Paris epitomise that vision. It’s almost, I suggest to him, as if DFS is experiencing the third wave in its history to follow the Bob Miller/Chuck Feeney Japanese wave of the 1960s through 1980s and the Chinese wave of the 21st century.

Schaus concurs. “To some degree we were riding waves in the past,” he comments. “We were riding the Japanese wave, we were riding the Chinese wave… my predecessors made the smart decisions to be in the right place at the right time. The business was driven by travellers coming to these places and by the natural price benefits or value propositions they were finding.

“I think the next wave is one we have to build ourselves. We have to build it through strong marketing, through the usage of digital tools, through incredible places, through destinations. We have to build that wave – it’s not going to come by itself.

“And it will be a much more multinational wave. There will be Japanese, there will be Chinese, there will be Koreans, there will be – as we now see in Siem Reap – Europeans. There will be Indians, there will be all sorts of nationalities. There certainly won’t be a mono-nationality wave. I don’t believe that.

“Even if there is a little bit less exuberance, even if there’s less consumption, the Chinese wave will remain by far the biggest wave for a long time to come. But the wave we have to build is our own wave, built on superior experiences, design, brand mix and service – and that’s what really Venice and Siem Reap stand for.”