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An early image of Bob Miller (right) with fellow DFS Co-Founder Charles ‘Chuck’ Feeney. Their corporate break-up in 1996 would leave Miller “lonely and depressed” |
Editor’s introduction: Bob Miller is one of the seminal figures of the travel retail industry. In 1960 he and fellow Cornell University graduate Charles ‘Chuck’ Feeney began selling duty free liquor and cars to American military personnel in Europe. Within two years their fledging partnership was to start two airport concessions in Honolulu and Hong Kong, spawning the company now known as DFS – the US$3.7 billion giant of 21st century travel retail. In his first-ever trade media interview, the veteran entrepreneur took time out at the recent DFS Hawaii 50th anniversary celebrations to talk to The Moodie Report Founder & Chairman Martin Moodie.
Prologue: “After graduation [from Cornell University] I had no desire to settle down but really wanted to see the world and experience life for myself. I travelled and worked my way throughout the United States and Mexico, and in September 1957 – ready for new ventures – I purchased a second class berth on the SS Queen Frederica and sailed from New York to Spain. A few weeks after landing in Spain I secured a job working on the reception desk at the Ritz Hotel in Barcelona. It was in Barcelona that by coincidence I met a Cornell schoolmate, Chuck Feeney.
“Chuck had”¦ just started a salesman’s job for a British company called Associated Merchants, which sold duty free liquor to US Sixth Fleet personnel. He was in Barcelona waiting for some US Navy ships to arrive. Chuck and I went out to dinner that night and talked excitedly about developing a business together. The duty free business sounded like a good idea – and that was the beginning of a partnership that lasted until 1996.”
-Bob Miller, from DFS 50 – The Journey Continues, published by The Moodie Report, 2010
Some 50 years after starting a small duty free concession at Honolulu International Airport, DFS Group Co-Founder Robert ‘Bob’ Miller is back in the state of Hawaii – and relishing the experience.
Silver-haired and tanned, wearing a casual open-necked white shirt, Miller, now 79, is in relaxed, mellow mood as he chats. We are in the plush, elegant surroundings of the Platinum Service Club on the fourth floor of DFS Galleria Waikiki.
Miller is in town for DFS Hawaii’s 50th anniversary celebrations, a few miles and half a century down the line from the humble airport startup of the world’s largest luxury travel retailer.
For The Moodie Report it’s a rare and privileged audience with the US-born entrepreneur who has always shunned media appearances. Down the years, in a business driven by intensely competitive and secret concession tenders, he felt little need to talk about his aspirations or strategy, preferring to let his achievements do the talking.
And how they talked. From 1960 onwards Miller and Feeney, together with (from 1966) minority shareholders Anthony Pilaro and Alan Parker, forged an extraordinary global retailing empire, built initially on the high-spending habits of Japanese overseas travellers.
And so it remained until 1996 when Feeney, Parker and (at the 11th hour in early 1997) Pilaro sold their respective shareholdings to LVMH. Bitterly opposed to the sale, Miller retained his roughly 38% shareholding through those early stormy days, watching its value plummet during the subsequent Asian economic crisis and then rebound during a remarkable 21st century resurgence driven by the emergence of the outbound travelling Chinese.
In the course of a fascinating hour-long interview over coffee and sandwiches, the irrepressible Miller spoke candidly about the past, present and future of the company he built.
This week is DFS Hawaii’s 50th birthday. Was Honolulu your first airport bid?
Bob Miller: This was probably the first, because I came through Hawaii in 1960 on my way to Hong Kong. And then Peter Fithian, who I knew from Cornell, put me up in his house for a couple of days. I was just transiting through. He had the lei [flower garland] greeters’ concession at the airport.
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“You’ve got to have a stomach for risk. And you have to persevere” |
Bob Miller |
The terminal building was World War II vintage; they were building the new terminal, which wasn’t due to be completed until early 1962. Because of Peter’s connections with the airport, he had heard that when the concessions came out for bid in the new terminal, they were adding a new one – the duty free. And he asked if I would be interested. I said “Yeah, when you have more information, let me know.” And then I went on to Hong Kong.
And now it’s 50 years on. How does that make you feel?
It sort of overwhelms me every now and then. Those 50 years have gone by and like, wow, all of these things have happened. It’s incredible.
Today people see this luxury empire, which you built from nothing. But you battled through some crises, didn’t you?
Yeah. One was after the partnership broke up. I mean in 1996 when Feeney and Parker left, and then Pilaro left in January of ’97. And then I began my relationship with Bernard Arnault and LVMH.
Then the business started to fall off. We had the Asian crisis. And then later there was 9/11″¦ that was a very rough period starting with the new relationship.
So just on that point, what really drove you to stay in? People? Your heart? I guess yousaw it as your baby.
I think that was part of it. I was really, really torn. It was very difficult. But I think the thing that carried it through was, my family saying “We’ll persevere” – that was the other part of the equation.
Well, you’ve been proven right. You had a rocky period at first in the late 1990s, but since then a lot of good days.
A lot of good days, yeah. I think the satisfaction is even greater when you persevere and it comes out right.
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The Moodie Report Founder & Chairman Martin Moodie with DFS Co-Founder Bob Miller in Hawaii |
What was the lowest you ever got, was it in ’65 to ’67 [when the business nearly collapsed] ?
Financially, yeah. But I think emotionally it was the [1996/97] break-up of the partnership.
You were strongly opposed”¦
And I was very depressed. It was a very bad, tough period. [First there was] A new relationship beginning, and then the market going into a rapid decline. I was alone then. The other three guys had sold out and gone their own separate ways. So, it was a very lonely and depressing period right then.
At that point did you ever think “I’ve made the wrong decision, I should have sold, too”?
[Laughs] I think that crossed my mind a few times, yes. Definitely, yeah. But then the people”¦ I couldn’t let our DFS people down. How could you walk away at that stage?
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Toasting success: A young Bob Miller celebrates an early DFS breakthrough |
Much earlier you had experienced a different kind of crisis.
Yes. It was in 1965″¦ with our duty free military business. The two airport concessions [Hong Kong and Honolulu] had been running since 1962. But by 1965 we had expanded the military business quite considerably. In fact, we had overexpanded the operation. And we didn’t have the proper internal controls. So we had a financial crisis right about the time I got married! I got married in May of 1965 in Hong Kong.
I was on my honeymoon in Malaysia and I got a call from Chuck Feeney who was working out of the New York office [for the military business]. He told me we had a financial crisis, and I had to come back to New York immediately because we had to sort some things out. So I flew back to New York and checked the books, and realised we were going down pretty quickly.
So at that stage in ’65 we made the plan that we would shut down the military business, because the laws had changed for the amount of duty free items that the military could bring back. It had become less profitable. And so we had to start closing that down.
So you were close to the dream being terminated very early on?
Yeah, ’65 – that was the first really big crisis.
And the airport business brought you out of it?
Yeah. Between 1965 and 1967 it took me about two years to close down the military operations. We had so many offices that needed to be closed down; we had to deal with the personnel, collect money, pay bills, and still keep our head above water.
Fortunately the Japanese started pouring into the airport stores in Hong Kong and Hawaii. We could use some of the cash flow that was developed there to pay our bills and settle all our military obligations.
[In military] We had duty free liquor and we had a duty free car programme. And we had a lot of cars that still had to be delivered. We had to fulfill our obligations. By 1967 all we had left was the airport duty free. So then we really focused our whole attention on that business, because we could see the opportunities with the Japanese.
[“By 1964, after the Tokyo Olympics were held, Japanese tourist travel began in earnest. Japan, which had been bottled up since the end of the World War, was now becoming a prosperous nation and its people wanted to travel, shop and see the world. They favoured deluxe branded merchandise that they could buy duty free, with good savings over retail prices at home.”
-Bob Miller, from DFS 50 – The Journey Continues.]
So Hong Kong and Honolulu really took off with the start of the Japanese outbound travel wave?
Yes. And we moved on to Anchorage, San Francisco, Guam, and then Saipan, eventually down into Sydney and New Zealand. We did a lot of competitive bidding.
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“It sort of overwhelms me every now and then. Those 50 years have gone by and like, wow, all of these things have happened. It’s incredible.“ |
Bob Miller on DFS Hawaii having reached 50 |
You felt that Japanese phenomenon very quickly. You saw it and you reacted really fast in terms of having the right service and, particularly, the right offer. That was pretty intuitive.
I mean, you couldn’t help but notice it. They’d be lined up in front of the store asking for this, that and the other thing. So we had to react quickly to take advantage of this market. And it was a question of getting it together, getting the right people, getting the staff that we had, and getting the merchandise assortments.
The experience we had almost going bust with the military business taught us a lesson about internal controls, and about the importance of the back office and having the right financial disciplines and the right financial people in place. That was a real learning experience. And we were fortunate to come out of it alive. That taught us a lot on how to run a business properly.
But it wasn’t quite as straightforward as just fulfilling demand. You did some bold things with brands – Camus Cognac for example. It wasn’t a household name, was it? But you made it into one for the Japanese.
We developed a very good relationship with some of the brands, yes, definitely, because they came with us early on. We developed a loyalty with Camus. We had difficulty trying to get Hennessy and Martell. They wouldn’t deal with us. And actually Michael Camus would deal with us, and helped us to develop a good assortment of Cognacs and Armagnacs, which we then started promoting. And eventually Hennessy and Martell came to the party, realising it was a good business.
You’ve created this extraordinary retail and luxury business. If you could try and distil what makes an ultrasuccessful entrepreneur, what do you think the recipe would be?
I think the willingness to take risks. You’ve got to have a stomach for risk. And you have to persevere. Those are the two main things, because you really get rattled at times. If you’re developing your own business, you have nobody else but yourself. So you’ve got to answer to yourself. Being able to take risks and to persevere with what you think really matters. Another thing is to have instincts”¦ to have a good nose for the business.
How do you see the business today? You had that great Japanese wave in the mid-1960s, which propelled you for a couple of decades. Now you’ve got this new surge, in many ways very similar, with the Chinese. And you’re right on that as well, having moved the DFS headquarters at the optimum time (2004), almost ahead of the curve. How do you see that whole China dynamic?
Great, really fantastic. There’s another wave that’s being created. And we’re there. The partnership with Vuitton has worked out beautifully over the years. If the original partners had stayed together, I don’t think we would be as far ahead as we are now.
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“If the original partners had stayed together, I don’t think we would be as far ahead as we are now“ |
Bob Miller |
That’s interesting”¦
The Vuitton/Arnault relationship has been very good. They’ve been very good partners, after the few rocky years in the beginning -1997, ’98 and some of ’99 when we went through a sort of baptism of fire with the different personalities and the different tensions of the business and how to react to them.
They were a large corporate structure, and I’d been used to dealing with Feeney and sitting down like you and I are now. And in three or four minutes we would say “We’ll do this, or we won’t do this”. And do it real quickly.
Now I was dealing with more of a corporate structure. There was a different mentality, a different psychology involved.
How have you managed that?
It’s been very good, because I think Ed [Brennan, CEO of DFS since 1998 and Chairman since 2001] and I get along. It’s a fantastic relationship. And with Toni Belloni, who’s Arnault’s Group Managing Director for the LVMH Group, we get along. He’s terrific. So there’s a great relationship at the top level. And that’s very important.
Have you had to change your style?
No, not really. I could always speak up, and I respected their opinion. They respected mine. It worked well and it still works well.
Do you still live and breathe it like you used to?
I think on the strategy, yeah. The excitement of the Hong Kong bid [where in June 2012 it was announced that DFS had won all three core category concessions on offer at Hong Kong International Airport] – that blew me away for two days [laughs]. I said, “Wow, this is incredible.”
So, you still feel the hunger and the passion like you used to?
The passion, yeah. [Laughs] There’s not as much hunger, maybe, now. But there’s still a lot of passion.
Ed Brennan stands down as CEO in August and as Chairman in December. Any comments to make about him?
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Ed Brennan is “one in a million” says Bob Miller |
He’s really a terrific executive and a strategic thinker. The way he handles his people is really wonderful”¦ [as are] his vision and the discipline that he brings to the business, and the operating plan. He’s got a wonderful relationship with Steve Magnum, the CFO, and with Michael Schriver, who’s now become the Chief Operating Officer. Michael is outstanding.
The team that Ed has put together is really second to none. And they work together; there’s a lovely feeling of camaraderie. I think they enjoy each other’s company, which is nice. And so, they love the business.
It gives them a huge amount of satisfaction to see the [business] plan work. And the plan has worked under Ed and his vision – it’s worked very well. Ed is one in a million. And I love him dearly”¦ he’s great. They’re hard to find, you know.
It’s a new management era starting for DFS now. How do you feel about that?
Well, after the Hong Kong bid success and Los Angeles, where we’re waiting [DFS’s number one bidder status in the LAX duty free tender was announced a few days after this interview -Ed], I think that we will probably deliver to Philippe [Schaus, the incoming Chairman & CEO -Ed] a whole platform that is ready to take to the next dimension.
It’s interesting, that with those two contracts and also New York JFK renewed recently, DFS is very much back in the airport game in a big way. For a while you’d probably started to be seen as more of a downtown retailer.
That’s right.
So, do you see the airports as a big part of DFS going forward?
Very important. They provide a good solid base to the relationship with our brands. And our brand relationships are extremely important to us. That’s part of our lifeblood – all of the different brands that we deal with. So now, having liquor and tobacco, perfumes and cosmetics, and general merchandise in one of the major airports of the world [Hong Kong International] strengthens us considerably.
It’s more expensive to operate in the airport than downtown. The rents in Hong Kong are not cheap downtown, but with your concession fees and the competitive bidding, airports are an expensive operation.
You can’t make very many mistakes.
[On 30 April 2005 Bob Miller’s 140ft Mari-Cha IV won the Rolex Transatlantic Challenge, breaking a century-old record for the 2,925 nautical mile passage. The boat battled ferocious conditions, causing both the mainsail headboard and the headboard cars on both mainsail and mizzen to break.
“This was a very tough trip,” Miller told reporters. “We had six days of weather on the nose. We crossed the Gulf Stream, saw some very rough seas and had headwinds and steep short seas on the nose, and the boat and the crew took a beating.”]
You once said there’s nothing more exciting than the adrenalin of being out at sea in severe weather conditions. You’ve been out in the Atlantic in very high seas. Were you ever scared? Did you feel fear?
Concern, yes, but not terror or anything like that, no. Concern”¦ but we had a very good boat and we had a good crew. So, we felt comfortable that we could deal with almost any adversary that came up. But, yeah, I have a lot of respect for the ocean.
Are there parallels between a crew at sea and a business?
Absolutely. Oh my goodness yeah. The teamwork on the boat is vital. And then to have the leadership is important when things are really tough. You can’t go into a panic or anything like that. You’ve got to know what you’re doing.
I asked you earlier about the low points. If I asked you to single out the highlights of this great 52-year journey, what would they be?
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“The excitement of the Hong Kong bid blew me away for two days“ |
Bob Miller |
There’s been a lot of exciting things. [Laughs] I suppose getting married in 1965, and then six weeks later finding out that the company was going bust, and taking my new bride back to New York! That was sort of a high, getting married, then a low coming six weeks later.
I think a lot of the highs were in the successful bids. Anchorage, Alaska was one. Going into Anchorage”¦ we caught it right at its peak when the jet aviation [aircraft] needed to stop to refuel.
Then eventually the new 747s could overfly Anchorage and the business started going down, so then we sold out. We had a good run. This recent success just now, winning Hong Kong – that definitely is a big high for me.
I think negotiating to buy out Bobby Jones in Guam. We bought his duty free concession from him. That’s how we took over the airport. He had the airport in Guam”¦ at that time we were competing with him. We had a hotel shop because in Guam we could deliver to the airport duty free. So we were competing. And then I went to him and said, “look, we’ll buy you out, make a deal.”
Also bidding on Saipan; we actually built the airport there with our bid. We helped to finance the runway and the building of the terminal. So we sort of pioneered a few things I guess.
It comes back to what you were saying about being prepared to take risks. Not everyone’s prepared to do that.
Yeah. You know we were just telling the (Hawaiian) Governor today that we’ve paid probably US$3 billion to the State of Hawaii [in concession fees] since we’ve been here.
That’s a lot of money, so let’s close on that note. You must feel incredibly proud about what you’ve become here in Hawaii in terms of contributing to the economy, to the airport, to employment.
Oh, very proud, very proud. But I’m a humble guy, so it’s about the people and everything else. Everybody’s made a fantastic contribution here. So it’s an effort of many, many people.
Well it’s a fantastic story, Mr Miller. May it long continue. Thank you.
OK, thank you, Martin.
Epilogue: Bob Miller is one of a kind. Born in May 1933 in Quincy, Massachusetts, he’s mellowed with age but still retains his zeal and acumen for business, and absolute recall of the key moments that have shaped his life.
This is a man, remember, who – just before his 72nd birthday – pushed himself, his 140ft yacht and his crew relentlessly across an often brutal Atlantic for nine days, 15 hours, 55 minutes and 23 seconds to shatter the previous trans-Atlantic record by two and a half days.
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Face to face with an industry legend |
| To be in such company is to be humbled. How DID they do it? This is a man, make no mistake about it, who has truly shaped our industry – and, don’t forget, who still does |
This is a man who in March 2005 addressed guests at the opening of DFS Galleria Okinawa, entirely in Japanese, speaking of his 44-year “love affair” for the island. This is a man whose love for the company he founded still burns bright, as anyone who saw him speak at the DFS Hawaii 50th anniversary celebrations in Honolulu last week can testify.
To the DFS employees and retirees who attended, his presence had a talismanic effect, and in private conversations the tone of DFS’s most senior executives becomes almost reverential when they talk about the man and his influence. So what does the future hold for Bob Miller? As our landmark interview ends, I ask him if he plans to stay active and committed to DFS.
The question prompts a long and eloquent reply, and unexpectedly soft words for his long-time partner Chuck Feeney (the fall-out from the LVMH sale was immense, and he was reportedly deeply unimpressed with his portrayal in Feeney’s 2007 biography The Billionaire Who Wasn’t).
“Actually I’m very much committed to the company and the people and the future,” he replies. “I suppose it’s a question of the family, as I’m getting on”¦ what the family wants to do, and making sure that things are secure for them.
“The relationship with [Bernard] Arnault and LVMH is very important as to what we want to do going forward,” he says, noting the importance of personal business relationships. “I mean, Chuck Feeney and I”¦ we had a 35-year relationship, and it was great when during a [long] period of time it worked very well.
“We worked very well together. I suppose that’s because we were alpha-type individuals, each one of us. The fact that we weren’t in the same geographical area all the time together [helped], or we’d get up each other’s noses. So he would be handling one part of the business, I’d be handling another, and so forth. And we could always keep our relationship balanced quite well.
“Then when he got to a certain point, he said ‘Well I’m going to move on. I’ll sell my shares and I’m going to go off and do something else,’ which is fine. Everybody has their own point of view on these things.”
Clearly there are things left unsaid; but it’s an elegant way to close this look back on a 52-year relationship with DFS, 36 of which were spent in partnership with Feeney. Miller describes his latter-day partner, LVMH Chairman Bernard Arnault, as “a different species completely [to Feeney],” noting: “He’s got a big public company, a Goliath actually. But DFS is one of his gems, I’m sure.”
That’s a big change in sentiment from the early crisis-ridden days when Arnault once described DFS as “non-core”, I point out. “Well I think”¦ when he made his first investment”¦ when the bottom fell out of the market in ’97 and ’98″¦ he was thinking, ‘My God what have I done? I’ve got mud on my face,’ or something like that.”
There’s no mud now. Buoyed by the second great Asian travel wave of its corporate lifetime, DFS and both its shareholders are riding high, with turnover stretching to an estimated US$3.7 billion last year.
That was buoyed by the runaway success of its Macau business (now worth around US$1 billion) and an empathy with the shopping habits and desires of Chinese travellers that is the envy of the travel retail business. Bob Miller’s incredible life journey continues apace.
