The LVMH-owned retailer is rekindling an appetite for China, while also eyeing the Middle East.

Kevin Rozario reports.

Asia Pacific has been the region in which DFS Group has built its position in the global travel retail channel. Despite opening up the airport market in the United States and, more recently, major downtown stores in Venice (T Fondaco dei Tedeschi by DFS) and Paris (La Samaritaine), the LVMH-owned retailer holds Asia close to its heart.

The announcement of the Yalong Bay project in Sanya on the island province of Hainan in October 2023 (a signing ceremony held by DFS Gr0up and Shenya Group took place in April 2024) underlined the company’s ambition to double down on its Asia Pacific business by expanding in China. This part of Hainan is where the Chinese government plans to create the world’s largest free trade port.

DFS’s 128,000sq m retail development is expected to be ready by 2026. It is described as “the first world-class, seven-star luxury retail and entertainment destination” featuring no less that 1,000 luxury brands that will, of course, include a slew of LVMH’s maisons.

DFS Group is hoping that the space – filled with a mix of fashion and apparel, beauty, watches, jewellery, wines and spirits, fine dining, and F&B outlets – will become a destination and pull in over 16 million visitors annually by 2030.

In the here and now, however, the Chinese economy is on shaky ground. While GDP has remained at the 5% mark, some structural issues like the slow-motion unravelling of the real estate market and high youth unemployment may yet impact travel, and subsequently duty free shopping.

DFS Chairman and CEO Benjamin Vuchot is not overly worried. He told TRBusiness: “Overall, we are greatly encouraged by the ongoing rebound of the luxury market in the APAC region. After a period of exceptional growth, the market is now entering a phase of normalisation, influenced by certain macroeconomic factors such as a global economic slowdown and currency fluctuations which impact spending power.”

Fortunately, in geographic terms, the company has seen what Vuchot has observed as “remarkable resilience in key markets such as Macau and Japan”.

“Despite the challenges faced, these regions [Macau and Japan] have demonstrated an ability to adapt and recover swiftly. Additionally, we have witnessed a sound recovery in the US and Oceania, driven by the gradual return of tourist traffic.”

Bullish on resurgent luxury spending

However, Vuchot is pragmatic: “It is important to note that while recovery is underway, spending patterns still exhibit some level of restraint.”

He added: “This can be attributed to cautious consumer sentiment underpinned by a slowdown of the global economy, persistent inflation, and currency fluctuations as I mentioned earlier. Nonetheless, we remain optimistic and believe that, as confidence rebuilds and travel resumes, we will witness a resurgence in luxury spending.”

When LVMH revealed its annual results at the end of January, DFS was still very much in catch-up mode within the ‘Selective Retailing’ division. Its sister company, beauty specialist Sephora, has been on a roll. Revenue in the division grew by 25% (organic), as Sephora turned in an excellent performance in most regions, particularly in Europe and the US, while DFS benefitted from a limited recovery in international travel.

However, profit as a percentage of revenue is much lower in selective retailing today than before the pandemic and this is likely to be due to DFS’s performance. In 2019, the division generated €14.9 billion/$16.7 billion and delivered €1.4 billion in profit, or 9.4%. By 2023, that percentage had slipped to 7.8% based on €17.9 billion revenue and €1.4 billion profit.

Last year saw some exceptional development for Sephora – which entered the UK market and continued to expand its collaboration with Kohl’s in the US – generating record annual revenue. While DFS recorded a year-on-year sales rise, it remains below 2019 levels.

This is still the case in Q1 2024, although organic revenue for the selective retailing division as a whole grew by 11% yoy to €4.175 billion for the quarter. DFS, whose chief focus in recent decades has been on Chinese shoppers, is having to work with their sluggish return to global markets.

Following the Covid pandemic, mainlanders have been slow to venture into Europe and North America, though business has rapidly recovered in nearby tourism hotspots like Hong Kong and Macau.

Beauty Collective concept

DFS has not wavered from its luxury ethos, despite a difficult few years. Vuchot said: “Providing a personalised, curated, and indulgent consumer experience is at the heart of what we do and that is what we believe is a key to entice consumers to come discover and explore what we have to offer.”

The company has had successes with several flagship campaigns. Its hit beauty event ‘Explore New Dimensions’ featured new interactive consultation experiences driven by artificial intelligence while the annual ‘Masters of Time’ presentation showcased more than 300 of the finest pieces of horology and jewellery from over 45 maisons.

DFS held the latest edition of its ‘Masters of Wines and Spirits’ exhibition at Macau’s City of Dreams and, as part of its digital strategy, the retailer launched a new customer loyalty programme called DFS Circle.

“We also recently unveiled the revolutionary Beauty Collective concept at DFS Hong Kong, Causeway Bay. It curates brands across lifestyle, skincare, haircare and technology that are not widely available yet in Hong Kong, creating a haven for beauty enthusiasts, and offering a comprehensive and tailored shopping journey,” explained Vuchot.

The company remains vigilant and still maintains tight control over its allocation of resources. However, it has been expanding in both Hong Kong and Macau.According to LVMH, DFS has opened a new store on Senado Square in central Macau and renovated shops in Hong Kong.

China and the Middle East

Looking ahead, DFS sees plenty of opportunities for growth and the inauguration of the company’s concession at Chongqing Jiangbei International Airport, its first location in Mainland China, signals its intent there – and elsewhere.

Nancy Liu, President of DFS China, told TRBusiness: “We are particularly enthusiastic about the Yalong Bay project in Hainan. This endeavour represents a significant milestone for us as it will be our largest store worldwide. It is strategically positioned to capitalise on the Hainan Free Trade Port policy. This project will not only contribute to our growth but position us as a prominent player in the Hainan market.”

Vuchot has described Yalong Bay as “an incredibly exciting development” for DFS and the China travel market.

“Think the glamour and experience of Shanghai, Macau, Dubai, and Las Vegas: now add Sanya to these dream destinations,” he said. “We believe that Hainan is well-poised to become one of the fastest growing luxury markets in the world, maximising 
both domestic and international consumption.”

Around the time of the signing ceremony in April, Liu said: “We are pleased to share that (we are) moving forward at full steam. We have received strong positive feedback from our brand partners. Additionally, property design and redevelopment, as well as overall infrastructure enhancements, are all going as scheduled. Our commitment to this project is rooted in a comprehensive analysis of market trends and consumer behaviour, allowing us to make informed decisions.”

While China is where there is unprecedented investment, Vuchot also has his an eye on expansion further afield.

“In addition to our focus on Hainan, we are eager to grow our presence in the Middle East,” he said. “The region offers immense potential, with a burgeoning tourism industry and increasing investments in infrastructure and hospitality. We are committed to expanding our operations in this region. By establishing a stronger foothold and leveraging our expertise in the luxury retail sector, we aim to capture a significant market share and forge long-lasting partnerships in the Middle East.”

This feature first appeared in the TRBusiness May 2024 issue, as part of the annual Leading APAC Operators report. Click here to read the ezine.

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