Amid a difficult economic and retail climate, DFS Group has embarked on a strategic restructuring, streamlining its operations and calling on a six decades-plus pioneering spirit to drive an Asia-centred revival. DFS Group Chairman & CEO Ed Brennan explained the context and the way forward in an exclusive interview with The Moodie Davitt Report Founder & Chairman Martin Moodie in Hong Kong.
DFS Group is this week beginning a triple-pronged restructuring, reinvention and revival plan, anchored by a laser focus on its Asia heartland and the need to address an increasingly troubled retail climate.
The programme will affect multiple aspects of the company but will result in a leaner, stronger and more focused DFS, insists Chairman & CEO Ed Brennan.
Speaking exclusively to The Moodie Davitt Report in Hong Kong, Brennan pulls no punches in describing how a fast-evolving economic and consumer landscape has dramatically affected traveller shopping behaviour.
DFS’ response – led by Brennan, who returned recently for his third stint in the role – is straight from the company’s tried and tested 64-year playbook. It involves a combination of streamlining operations and costs on the one hand while reengineering its strategy, zeroing in on profitable locations and investing in growth opportunities on the other.
Brennan doesn’t attempt to mask the gravity of the challenges DFS faces nor the extent of the short-term measures required. But he insists the company is both up to the task and here for the long term.
In common with its travel retail peers, DFS sees the channel through the lens of a world economy on edge. Nowhere more so than in China, whose travelling consumers have driven the retailer’s fortunes for most of the 21st century and where a cooling economy will mean sluggish +4.8% growth in 2024 and just +4.5% in 2025, according to a recent Reuters poll.
That slowdown, weighed by a property market crisis and torpid consumer demand, has direct implications for travel-related shopping and particularly for DFS.
Throw in moribund luxury and beauty sectors and increasingly value-conscious consumer sentiment and the repercussions for such a heavily Chinese consumer-weighted business as DFS are clear. Especially given a widely documented post-COVID change in Chinese traveller priorities from the transactional to the experiential and intensifying competition from other retail channels such as cross-border ecommerce.
DFS has to adapt fast, Brennan says, balancing efficiencies with targeted investment to future proof itself for the long term.
Embarking on a reinvention
Brennan is a seasoned leader who has led DFS through previous storms, notably the latter stages of the 1997-1999 Asian financial crisis; the second Gulf War of 2003 onwards; and the early days of the COVID-19 pandemic. His return to the helm, replacing Benjamin Vuchot, was always bound to mean a sharpened attention on profitability and core business.
But it’s not just about cost savings. Remember it was Brennan who led DFS’ early 21st century entry to and subsequent extraordinary success in Macau, now firmly established – despite its own challenges – as the company’s heartland. The company plans to double down on Macau and fellow Special Administrative Region Hong Kong while identifying key long-term growth opportunities elsewhere, including Vietnam and Indonesia.
One of those is Yalong Bay, site of the company’s extraordinarily ambitious retail and entertainment project in Sanya, Hainan island, being developed in partnership with Shenya Group.
The 128,000sq m development, hailed as the island’s first world-class, seven-star luxury retail and entertainment destination, will culminate in what DFS describes as an “indulgent luxury resort that combines the allure of nature with a curated, immersive experience”.
“We are absolutely committed to this project,” says Brennan. “We have a great partner there and an incredible location. It will be the biggest investment we have ever made in a single project by far.
“We are putting a tonne of energy into Yalong Bay to build a differentiated strategy. The project isn’t just about attracting all the LVMH, Kering and Richemont brands – it’s much bigger than that. We’re going to compete in a differentiated way. We have a wonderful property which is right at the entrance point to all the luxury hotels. And the beach is the best in the south of Hainan.”
Maintaining a selective airport presence
While its principle focus will be downtown, DFS still remains committed to airports, Brennan points out.
“We will evaluate each opportunity on its merits,” he says of future tenders. “We are not saying no to airports and we are saying yes to new geographies.”
DFS’ long-term presence in US west coast airports San Franciso International and Los Angeles International, for instance, will remain core. “These are two critically important properties,” Brennan notes. “We have long-term contracts to 2034 so we have another ten years and we are making significant investments in both.
“In Los Angeles, for example, we have acquired some new space and are doing several exciting things, including opening Cartier at the beginning of January.”
Targeted investment will also be the name of the game in Hong Kong, a location at the beating heart of DFS operations since the mid-1960s – and its global headquarters since 2004 – but seriously undermined in recent years by the 2019-20 protests, the COVID-19 pandemic and a mired economic, tourism and retail climate since.
“Canton Road has historically been our flagship in Hong Kong but we got a little distracted,” Brennan observes. “We opened DFS Moko [in Mong Kok, Kowloon in November 2019] and we have Hysan Place which we’ve retracted so it’s now solely a beauty store. And we have Chinachem, which was the conducted tour footprint.
“We’re going to concentrate our attention on bringing back Canton Road as our flagship. We’ve gone through a difficult time with losing some of the brands in that store, the marketplace tightening up and so forth. We’ve lost the focus but we’re going to make a significant commitment to invest capital to bring it back to a flagship status.”
Amid the challenges there are bright spots, nowhere more so than the Japanese offshore duty-free haven Okinawa, where sales are flourishing. “Okinawa is crucial to us going forward,” Brennan comments. “We’re doing extremely well and we’re investing in that store with expanded boutiques next year, including those we have with Cartier and Van Cleef & Arpels.”
Enhancing competitive advantages
Simultaneously DFS is seeking to strengthen existing capabilities that Brennan believes set the company apart from its competitors. These include information technology, the DFS CIRCLE loyalty programme, digital sales, and Xcelerate (touted as the biggest technology-enabled business transformation in the retailer’s history), which was rolled out in April with completion due by the end of next year.
The Xcelerate programme will put DFS in a leadership position in technology terms, Brennan claims, emphasising such heavy investment is ready evidence of the company’s confidence in its long-term future.
Overall the restructuring and reinvention plan represents a mix of choices around cost efficiency and a simplified organisation balanced by the bolstering of key differentiating capabilities and technologies, Brennan points out.
Boosting the talent pool
Such a balancing act and game plan necessitates a revitalisation of the senior management team, he says, revealing that the company is bringing in additional leaders (see panel below) who offer “proven results, fresh eyes and new ideas to fuel growth and drive DFS’ reinvention”.
That process starts at the top with the much-respected LVMH North Asia Group President Michael Schriver [and former DFS Chief Operating Officer] joining the DFS Board of Directors (in addition to his LVMH role), bringing a renowned tactical acumen and savvy knowledge of Asian consumers to play.
Additionally, Malissa Akay, a seasoned – and also former DFS – fashion retail executive, will take up the reins as President of Merchandising and Marketing on 2 January, replacing Christophe Marque.
DFS is also close to finalising the appointment of a Chief Operating Officer to help drive and integrate the strategic transformation agenda and groupwide reinvention.
Summoning a pioneering spirit 2.0
Any student of DFS’ long history will be familiar with the company’s reputation as a pioneer of markets, concepts and product categories.
It was DFS which opened the first downtown duty-free shops (in Honolulu and Hong Kong), later extended to a glittering portfolio of Gallerias. The company was also the channel’s first mover in the shift from mass to luxury retailing in the early 2000s.
It led the way in bringing luxury beauty to airports and was the pioneer of the offshore duty-free concept, first at Naha International Airport, Okinawa in 2002 followed by the opening of DFS Galleria Okinawa in early 2005.
The retailer’s heritage also reveals an ability to pivot during crisis, demonstrated most memorably by its shift from a reliance on a fast-fading Japanese consumer base to the PRC traveller after the turn of the century. Now Brennan intends to draw on that entrepreneurial DNA – reinvented 2.0 style – to drive revival.
“This pioneering spirit that drives us goes back to the challenges that [Co-founders] Bob Miller and Chuck Feeney faced early on through to those we have faced over the past two decades,” he comments. “It goes back to the early 2000s when we decided to work on the PRC market as we saw the challenges with the Japanese market. We started in Chinachem in Hong Kong and this became our differentiating strategy for the next two decades.
“Then there was the decision we made to move the headquarters from San Francisco to Hong Kong in 2004. It was a big call. We started to test with the PRC consumer and we saw the opportunity very early. When we took the DFS Board to Macau in 2004, it was basically marshland with a bunch of pilings going into the ground, yet we said, ‘We’re going to be the dominant retailer in Macau.’
“It was that pioneering spirit that transformed us. We’ve done it multiple times. The move from the airports to the Gallerias; the decisions that we made on walking away from Hong Kong International and Changi airports. These were all very controversial and a lot of people were really questioning us at the time, asking ‘What’s the future of DFS – how can you survive without these big airport contracts?’ But we did it.
“So we’re facing a challenging situation again. But a combination of the right strategy, right leadership team and the fact we’ve overcome such challenges so many times gives us great confidence,” Brennan concludes.
Seminal moments. Pivotal responses. DFS is drawing on that proven playbook but one updated for its times. ✈
Familiar faces return to the fold Through the appointment of new Board member Michael Schriver, DFS is reuniting with one of its – and luxury’s – most highly rated executives. Schriver is currently Group President of LVMH in North Asia, responsible for the global development of the luxury powerhouse’s activities in Greater China and South Korea. He began his career with LVMH at DFS after spending 20 years at US department store Macy’s. Schriver joined DFS in 1998 as Vice President, General Merchandise Manager for Hawaii and subsequently held several leadership positions, including Senior Vice President of Planning and Distribution; Executive Vice President, Merchandising; President of Merchandising; and President, Worldwide Store Operations. He was promoted to Chief Operating Officer in 2012. Schriver left DFS in 2014 to join Louis Vuitton North Asia, where he led the brand through a period of unprecedented growth and challenge before assuming his current role in September 2022. With his 26 years of experience in Asia at LVMH, of which 16 were with DFS, Schriver will bring unique value to the Board, DFS Chairman & CEO Ed Brennan says. Malissa Akay’s appointment as President of Merchandising and Marketing also brings a familiar and respected face back into the DFS fold. Akay has over 25 years of global experience in fashion retail, spanning product, brand and business strategy.  Most recently, she served as Chief Merchandising Officer and EVP of Stores at leading US fashion brand EXPRESS. In this dual role, Akay and her team reimagined product and category plans and store strategies, resulting in strong market share gains and a record performance. Additionally, she collaborated with the Chief Marketing Officer to articulate a powerful new brand purpose and promise. This led to a compelling marketing platform and established a consistent voice across all EXPRESS employee and consumer touchpoints. Akay began her career with DFS in 1999 as a management trainee, being part of the inaugural class of the Merchant Development Program. She spent 13 years with the travel retailer in increasingly senior merchandising positions within the watches & jewellery, food & candy and fashion categories. Akay launched DFS’ emerging luxury brands strategy for fashion at the time and grew 20+ brands including Balenciaga, Bottega Veneta, Chloe, Loewe and YSL. She left DFS in 2012 and has since worked for Ralph Lauren as the Chief Merchandising Officer for Polo, and for Lane Bryant as EVP before joining EXPRESS in 2019. Akay will relocate to Hong Kong with her husband and two young daughters. ✈ |
