|
DUTY-FREE SHOPS BRUSH OFF THE DUST
BY AMENA BAKR
F or many tourists, duty-free shopping is as much
a part of international travel as getting a passport stamped. That
is, unless you are going to Egypt, where duty-free stores are better
known for bare, dust-coated shelves than sexy displays of Swiss
chocolates and designer perfumes. Trying to shake off that derelict
image, a number of Egypt’s duty-free stores have recently
launched campaigns aimed at improving their marketing, store appearance
and presentation. As the industry edges toward meeting international
norms, some of these stores have managed to lure high-end brand
names.
Mahmoud Ghandar, commercial managing director of Egypt Free Shops
Company, which has 29 outlets including 10 duty-paid stores, says
the company has begun redecorating some of its stores and stocking
them with slickly displayed imported merchandise. Gone are the days
when it took up to six staff to process a single order and fill
out all the paperwork in triplicate – the refurbished branches
now boast a computerized retail system that handles all transactions
smoothly.
Ghandar believes creating a better ambience led to successful deals
with respected international brands such as Samsonite, Lancôme
and L’Oréal. “Before we used to beg these companies
to let us have their products,” he says. “Now they’re
the ones that are eager to deal with us.”
The duty-free chain that has solidified its position at the top
of the pecking order is EgyptAir Tourism & Duty Free, a subsidiary
of the national airline with 56 shops in eight airports and 10 other
outlets, including stores in El Gouna and Cairo’s Citystars
mall. After hiring an Irish consulting firm last year, it outbid
nine others to win a five-year contract for exclusive rights to
the new Sharm Al Sheikh airport, expected to open by 2008. The contract
requires the company to pay a minimum of $45 million or 34 percent
of total revenue from its airport operations to the Egyptian Holding
Company for Airports.
But according to Tawfik Assy, chairman of EgyptAir Tourism &
Duty Free, revenues should easily cover these costs. Current annual
revenue from the company’s duty-free store in Sharm Al Shiekh’s
existing airport is $15 million. The new store will have almost
four times the floor space, enabling it to offer more products and
promotions, which should result in greater spending.
Not resting on its laurels, the state-owned company is gearing up
for the upcoming bid for exclusive rights to all duty-free shops
in Cairo International Airport Terminal 3, due to open in January
2007. “I expect this bid to be very costly,” says Assy,
“but we are determined to win since in this line of business
you either have 100 percent control or none at all.”
The dominance of EgyptAir Tourism & Duty Free, particularly
within airports, has sparked calls for change. “We wish we
could get a chance to enter Cairo Airport, but EgyptAir is the only
company allowed inside,” complains Ghandar.
Assy, however, dismisses charges that his company holds an unchallenged
monopoly. He says airport executives can annul their contracts at
any time if unsatisfied and bring in another store. In fact, the
company’s iron-clad grip could slacken in the future if it
begins losing bids for operating rights in new terminals and airports.
But for the moment at least, the company enjoys high confidence
and few competitors – at least nobody with pockets deep enough
to challenge its ascendency.
The mere presence of duty-free stores in downtown Cairo and suburban
shopping malls points to a peculiarity in the Egyptian market. Unlike
most countries, Egypt’s duty-free stores serve not only departing
passengers, but arriving ones too. Many of the stores operate outside
airports to serve arriving passengers, who have 48 hours to make
duty-free purchases.
The system is a remnant of the socialist era when the domestic market
was closed and duty-free shops were among the only places that carried
imported goods. A one-month window for duty-free purchases was in
effect until a government decree implemented in 1999 slashed the
period to 24 hours, later extending it to 48 hours. A second decree
prohibited duty-free shops from selling consumer durables such as
microwaves, televisions, stoves, watches and even sunglasses, except
at ports of entry.
The policies were meant to help bolster local manufacturers, but
in reality only caused a shortfall of foreign currency and boosted
the black market trade in imported merchandise. Without an accessible
legal channel to purchase high-quality imported goods, Egyptians
turned to the black market, invariably paying for these goods with
local currency. “When tourists make purchases in US dollars
[at duty-free shops] this is a net gain of foreign currency,”
Ghandar explains. “So when we sell goods at our store we are
protecting the country from abuse of the black market.”
The pair of decrees also raised concern that the government could
not be trusted to enact economic policy consistently. Coming on
the heels of a privatization scheme in which the government had
persuaded investors to buy shares of formerly state-owned duty-free
stores, the decrees marked a sudden change of rules that nullified
the very conditions that made these stores profitable in the first
place.
Analysts turned bearish and private shareholders rushed to sell.
Without investors, company officials encouraged their employees
to purchase a stake in ownership. The strategy injected needed capital,
but also translated into a motivated workforce, says Ghandar. “There
is no doubt that the employees’ investments helped us through
that troubled time. Employees also worked harder to gain profits.”
Today, Egypt Free Shops is 91 percent employee-owned.
Yet the company is still facing challenges. The reduction of customs
duties on many imported goods has made duty-free items less of a
bargain, while competition from well-stocked hypermarkets such as
Carrefour and Spinneys is cutting into sales. According to Ghandar,
the only products left that sell well are alcohol, cigarettes and
perfume.
While Egypt Free Shops weathered the change in regulations, the
same cannot be said for Misr Foreign Trade Company. With only 11
duty-free outlets, most of which are located at the low-traffic
borders with Sudan and Libya, the company has reached a nadir in
terms of product variety and presentation. Dusty display cases haphazardly
stocked with broken toys and rusty wristwatches, and the legion
of idle employees slumped beneath flickering fluorescent lights,
attest to years of decline. “We were hit very badly by the
change in regulations as 70 percent of our profits came from selling
electronic goods,” says the company’s chairman, Farid
Abu El Ala. He candidly admits it may take at least another five
years for the company to become competitive once more.
Last year, the average visitor to Egypt spent only $7 on duty-free
products per visit compared to $34 per visit in Dubai. Ghandar believes
the government could narrow this gap by extending the 48-hour window
for duty-free shopping to one week. “It would make a huge
difference for us in terms of sales and encourage more businessmen
to invest in the duty-free companies,” he says. “The
48-hour period ties people down. Some of them simply don’t
find the time to buy duty-free goods in that limited time period.”
Despite numerous appeals, however, the Ministry of Finance has refused
all requests to extend the purchase period, Ghandar regrets. “Every
time it has been denied without any reason given.”
Ministry officials were unavailable for comment, though it it widely
believed the government has restricted duty-free shopping to protect
national industries.
Submit
your comment
Top
|
