Travel Markets Insider / April 2005
By Larry Luxner
PUERTO IGUAZU, Argentina — For years, two world-class attractions have lured tourists to South America's famed "Triple Frontier," the place where Argentina, Brazil and Paraguay meet: the majestic Iguazu waterfalls and Binacional Itaipú, the world's largest hydroelectric dam.
These days, a third attraction vies for attention as tourists stream across the border from Brazil into Argentina: Puerto Iguazu Duty-Free.
Over 1,000 people a day visit the sprawling border shop — which covers nearly 3,700 square meters on a 43-hectare tract of land adjacent to the Tancredo Neves International Bridge and just before Argentine customs.
Some shoppers are drawn by the building's futuristic architecture; others are simply looking for bargains on name-brand luxury goods. Either way, the venture has clearly been a winner for London Supply S.A.,the Argentine company that owns the duty-free concession.
"Currently, we're living in a paradise," says London Supply's commercial director, Francisco "Paco" Heredia La Fuente. Adds store manager Marcelo Beisso: "It's like a pilgrimmage here. During Holy Week, there's a line of buses waiting to enter our parking lot. One day last year, we received 1,500 people in three hours."
Heredia told Travel Markets Insider that, thanks to an unforeseen jump in regional tourism over the past few years, London Supply has already recouped its $12 million investment in the border store and is now raking in profits.
"The recovery of the Argentine market happened faster than we expected, and mainly for two reasons," he said. "Argentines aren't traveling outside the region as much, and more foreigners are coming."
Post-9/11 difficulties of visiting the United States — even just getting a U.S. visa — have encouraged wealthier Argentines and Brazilians to explore their own backyards rather than spend their vacations at Disney World. At the same time, both countries are now dramatically cheaper in dollar terms because of recent currency devaluations, making the region more attractive to Americans and Europeans.
"We inaugurated the store in March 2002, right in the middle of Argentina's peso devaluation, and at the beginning, it was terrible," said Heredia, who was interviewed at his office in the up-and-coming Puerto Madero district of Buenos Aires. "Nobody in Argentina wanted to travel or buy imported goods. At the time, I said two conditions were necessary for business to return to normal. The first was that all stocks of imported products in local markets should disappear. Some people were desperate, because they had to pay their bills and they had lots of imported goods that they couldn't sell, so they sold those products locally below cost.
"The second is that people must understand that a dollar is worth three pesos and doesn't change. The worst for us wasn't the devaluation, but the constant fluctuation of the exchange rate. If you see that today, a dollar is worth three pesos and tomorrow it's 4.20, you'll keep the dollars in your pocket."
Fortunately, exchange rates have fluctuated little over the past two years, and the Argentine economy has rebounded following the country's worst depression in over a century. In 2004, Argentina's GDP expanded by 8.8%, with further growth of 6.5% expected this year.
This means more money in the pockets of tourists, 870,000 of whom visited the Argentine side of Iguazu Falls last year. The Brazilian side, meanwhile, registered 980,000 arrivals. More than a million people are expected to visit each side this year.
Beisso, who oversees 135 employees, said 45% of Puerto Iguazu Duty Free's customers are Argentines, another 45% are Brazilians, and the remaining 10% are Uruguayans, Chileans, Americans, Europeans and others. Despite the store's proximity to Paraguay — it's only a 20-minute taxi ride to Ciudad del Este — it receives very few Paraguayans because of that country's relatively low purchasing power.
Puerto Iguazu Duty Free stocks over 7,000 distinct items, with prices marked in dollars (though customers can pay in euros, pesos, reals, guaraníes and a variety of other currencies, all of which may be exchanged at the in-house casa de cambio). Prices, on average, are 25% to 35% lower than in Buenos Aires or São Paulo.
It would not be a stretch to say that the store has become a tourist attraction in itself.
Designed by the late architect Alberto Radaelli, its outer structure is graced by a dozen fountains ringing the entrance. Passing via black marble steps through an enormous foyer, tourists are greeted by an Argentine government tourism office, a Telecom Argentina kiosk and an Internet station that resembles the lunar module.
Inside, a soaring white ceiling encompasses eight distinct departments ranging from electronics to liquor to accessories. Along one high wall, 10 clocks show the current time in Puerto Iguazu, Cape Town, Calcutta, St. Tropez, Puhket, San Francisco and other randomly chosen cities. In the middle of all the action sits a café-bar with mahogany floors. When we visited, a "Cher" music video was playing loudly on a huge video screen.
Beisso said that in the middle of the day, things are generally quiet because the tourists are visiting Iguazu Falls. But business picks up by late afternoon, when the Brazilian tour buses begin rolling over the international bridge back to Argentina.
Interestingly, fewer than half of those crossing the Argentine-Brazilian border stop at his store. But those who do spend an average $89 on purchases. And January 2005 sales were 40% higher than in January 2004, despite heavy competition from Ciudad del Este.
"For me, Ciudad del Este has fallen in quality," said Beisso, 34, who has been working for London Supply off and on since 1990. "Most Brazilians who shop in Ciudad del Este are people who live off contraband. But tourists who visit this are like our store because we offer security, comfort and air-conditioning."
Adds Heredia: "We are not competing with Ciudad del Este. We are targeting people who stay in four- and five-star hotels, and local inhabitants who have medium to high purchasing power."
At present, perfume and cosmetics account for around 45% of Puerto Iguazu Duty Free's sales, followed by electronics (30%) and liquor (15%). The remaining 10% consists of food items, accessories, glassware and household items.
"We work in four types of duty-free environments: airports, ferries, downtown shops and now border stores. Our marketing strategy for Iguazu is totally different. Our goal is that all tourists arriving in this region should know what duty-free is."
To that end, London Supply has spent hundreds of thousands of dollars on advertising and promotion — plastering nearby highways with billboards, handing out pamphlets at area hotels and even providing buses to take tourists across the border.
"If 100 people enter the store on a given day, I end up with 45 invoices. This includes married couples and families, since very few tourists are traveling alone. So practically everyone who enters the store buys something," he explained.
Despite its name, London Supply is a 100% Argentine company, founded 60 years ago in Buenos Aires by the father of the current president, Teddy Taratuty. In recent years — and especially following the Menem government's 1998 decision to privatize 33 government-owned airports — the company has been active in the extreme southern Patagonia region. It currently has contracts to manage airports in Ushuaia, Trelew and Calafate, though it operates no duty-free shops in the latter two because those airports don't offer international fights).
London Supply, with annual sales of around $50 million, also has a 46% stake in Uruguay's Punta del Este International Airport, which caters mainly to upscale Argentine and Brazilian tourists. It won the 25-year concession to operate that airport in 1995, and has since invested $40 million in the project so far.
Besides airport management, London Supply runs wholesale liquor distribution and ship chandling in many Argentine ports, and owns several Nissan, Hyundai and Honda car dealerships in the province of Tierra del Fuego. In addition, it owns and operates the Atlantico Sur department store in Ushuaia, capital of Tierra del Fuego and an important market in its own right because, as Heredia says, "98% of all cruise ships on their way to Antarctica stop in Ushuaia."
It also runs a downtown shop in the southern city of Río Grande,
But the Puerto Iguazu venture has already exceeded everything else in London Supply's portfolio. Part of the impetus for the project came from passage in the 1990s of Argentina's Law 24-331, which allows each province to establish duty-free shops for tourists.
Asked why the busy Argentine-Brazilian border, which sees six million crossings a year, never had a duty-free store up until now, Heredia said "because it didn't occur to anyone before."
According to Heredia, London Supply has an 80% interest in Zona Franca Puerto Iguazu. The remaining 20% is held by Miyar S.A., operator of Zona Franca Colonia in Uruguay. Heredia says his company defeated two other Argentine companies for the bid "based on the quality of our project, our know-how and the fee we pay to the government."
While the details of the concession are confidential, Heredia did say that the Argentine government required a commitment to invest at least $2 million, and that London Supply has promised to spend at least $5 million initially. In fact, total investment over the 40-year life of the project could exceed $100 million. That figure includes construction of a private port on the Río Iguazu, which runs into the Río Paraná and forms the natural border separating Argentina, Brazil and Paraguay.
"This is a 30-year concession, with an option to extend it for another 10 years," said Heredia. "It's very difficult to predict how it will develop. It all depends on the market."