The San Francisco Airport Commission has confirmed the award of its International Terminal Duty Free and Luxury Stores contract to DFS Group, a source close to the matter has told TRBusiness.

An internal meeting yesterday concluded the proposal evaluation process and recommendation of DFS Group for the 14-year base term.

This covers the operation and management of 11 Duty Free and Luxury Store locations over 46,295sq ft of space, 10 in SFO’s International Terminal and one in Terminal 1.

DFS Group will pay an initial minimum annual guarantee of $42m, as reported, plus a percentage rent financial offer covering 45.8% of gross revenues achieved up to and including $100,000,000.00; 41.8% of gross revenues from $100,000,000.01 up to and including $160,000,000.00; plus 30% of gross revenues achieved over $160,000,000.00.

“The minimum acceptable percentage rent offer for this tender was 30%, and DFS offered a tiered rent structure starting at 45.8% of sales up to $100M, which exceeded the Airports expectations,” said the source.

‘RESPONSIVE AND RESPONSIBLE PROPOSER’

Under the terms of the lease, DFS can execute an automatic extension period of up to five years should it choose to manage and operate stores as part of the airport’s construction of a new centralised security checkpoint and retail plaza in the international terminal.

TRBusiness understands the length of any extension would be rooted to the five-years in option, irrespective of when it is leveraged.

“For example, if the central checkpoint occurred and DFS built out new facilities in year 10 of the lease, they would have five years from the opening of the central checkpoint and new facilities, effectively extending the contract for only one year,” added the source. “We will likely begin discussions once a definitive timeframe for the project has been established.”

DFS Group’s appointment as master concessionaire was expected to be a formality following last month’s favoured offer to SFO’s Airport Commission, with this official confirmation of the award drawing to a close a highly competitive tender process.

As correctly anticipated by TRBusiness, this included three shortlisted companies referenced in the official bid documents, and can now be confirmed as the following (with their associated scores and luxury brand concepts). Scoring was conducted by an independent evaluation panel out of a total of 110.

DFS Group (96.67), Hermes, Gucci, Burberry, Yves Saint Laurent, Coach; Travel Retail San Francisco LLC (83.59) Hermes, Gucci, Bottega Veneta, Fendi; Dufry North America LLC (79.83), MCM, Tory Burch, Max Mara, Versace, Omega, Coach, Moncler, Ferragamo, Bulgari, Bottega Veneta; Duty Free Americas San Francisco LLC, Coach, Bulgari Jewellery.

They were chosen from a selection of 31 retailers and individuals who attended SFO’s initial bid briefings in April of this year – ahead of the original contract expiry date of December 31, 2017.

“The evaluation panel selected DFS as the highest ranking, responsive and responsible proposer for this lease,” Airport Director Ivar C. Satero said in a memorandum.

As has been well-reported by TRBusiness, the big hitting SFO International Terminal Duty Free and Luxury Stores licence has been on retailers’ radars since going out to bid in March.

The long lease term will provide DFS with ample opportunity to build on the International Terminal’s $107,730,414 in total duty free and luxury stores’ sales recorded in 2016.

It has held the duty free concession at SFO since 1983 and won its last 10-year master duty free and duty paid concession in what was then SFO’s new international terminal in early 1999.