Travel Markets Insider / March 2001
By Larry Luxner
At the extreme southwestern corner of the continental United States -- a stone's throw from where the US-Mexican border fence runs into the Pacific Ocean -- World Duty Free Americas Inc. has established the nation's largest duty-free shopping emporium.
The 15,000-square-foot San Ysidro, Calif., store represents a $12 million investment on the part of WDFA, a subsidiary of London-based BAA Plc (formerly British Airports Authority). Inaugurated in December in the presence of California Lt. Gov. Cruz Bustamante and 400 other invited guests from both sides of the border, the shop employs 75 fully bilingual salespeople and is expected to contribute significantly to the local economy.
"Our stores are everywhere you cross from the United States into Mexico -- from San Ysidro to Brownsville, Texas," said Ramón Bosquez, WDFA's president and CEO. "Our mission has long been: if you cross the border, you have to pass one of our stores."
Bosquez couldn't have picked a better location for his new store. An estimated 65 million people a year use the San Ysidro-Tijuana crossing, making it the busiest land border crossing in the world. Of that total, 50 million pass directly in front of the WDFA site.
"People perceive the US-Mexican border to be a desolate, unglamorous place, but our stores rival anything elsewhere in the world," said Bosquez, noting that the new shop occupies a 10-acre site just a few feet from the actual border crossing. The two-story building -- which boasts a mezzanine-level balcony offering gourmet coffee to customers while they shop -- is accessible via four entrances, enabling easy reach for foot and car traffic alike.
The building's overall architecture combines traditional Mexican imagery with modern brand images. An exterior mural of over 500 square feet is painted by local children, while another one -- a three-panel mural, measuring 65 feet high and 98 feet wide -- was done by artist Jody Hewgill and is loosely inspired by Mexican artist Diego Rivera.
Inside, 16 departments showcasing liquor, cigarettes, fragrance, jewelry, toys, gifts and leather accessories. Major brands include Esteé Lauder, Clinique, Elizabeth Arden, Chanel, Christian Dior, Cartier, Godiva, Rolex, Guylian, Buchanan's Chivas Regal and Johnnie Walker. In addition, a make-up bar features WDFA's own lip and nail color line, Calisa Private Label, which has 60 lipsticks and 40 nail polishes.
"We'll work with customers to take several colors at once and put together their own gift bags," says Sandra González, southern border vice-president of store operations for WDFA. "None of the main vendors really provide this library concept in duty-free. It's something that [domestic retailer] Sephora has been really successful with."
WDFA's newest border store -- which enjoyed the support of the San Ysidro Project Area Committee -- complements 34 other border shops in California, Arizona, Texas and Reynoso, Mexico.
"Duty-free coming back from Mexico has only recently been allowed by the Mexican government. We think there could be some potential there because it's a relatively new concept," he said. "Mexicans are similar to any upscale customer. The nature of duty-free focuses on upscale products. The more expensive the product is, the higher the tax on it is, and therefore the differential is bigger."
Typically, a 750-ml bottle of Johnnie Walker Black is $22, while on the U.S. domestic market it goes for $30 and possibly double that amount in overseas market.
Together, says Bosquez, the US-Mexican border shops account for 35% of WDFA's annual revenues of $380 million. Another 40 stores along the US-Canadian border, known as AMMEX Tax and Duty Free Shops, generate 25% of WDFA sales, while 45 airport duty-free shops in Chicago, New York JFK, Miami, Denver and other major U.S. cities bring in 25% of revenues.
The remaining 15% of revenues comes from sales to foreign diplomats in Washington and New York, and to the cruise-ship industry; WDFA supplies Royal Caribbean and other leading cruise-ship lines. Overall, the company claims to reach nearly one million travelers from around the world every day through its products and services.
"When someone buys duty-free from our stores, we escort them to the border and make sure they cross into Mexico. It is the same thing as making sure a passenger is actually getting onboard an aircraft [leaving the United States]," he said. "That's why it's so important to be close to the border."
Bosquez, interviewed at his office in an unlikely industrial park in Glen Burnie, Md., said he moved the corporate headquarters to the Baltimore suburbs a few months ago from Ridgefield, Conn. Originally from San Antonio, the 50-year-old accountant joined the company when it was still known as UETA. It was eventually bought by DFI, which had its distribution center in Baltimore. DFI itself was a merger of several companies including Samuel Meisel, which catered to the diplomatic community and the Port of Baltimore.
WDFA is now a subsidiary of BAA, but Bosquez insists that, contrary to industry rumors, "the company is not currently for sale."
He says overall revenues come from liquor (28%), fragrance (25%) and tobacco (20%); the remainder derives from gifts and fashion accessories. Prices are significantly lower in border shops, since their rents are much lower than what a concessionaire would pay in an airport location.
"At our Canadian stores, the majority of our customers are Canadians going back north, and likewise, our stores on the US-Mexican border cater mainly to Mexicans on their way back to Mexico," said Bosquez. Since the San Ysidro store's opening in December, he added, "we're finding a pretty even mix" of customers.
"A third of our shoppers are traditional Mexican duty-free shoppers; another third are tourists -- Americans, Asians, Germans, Australians and others who are in town for a convention and sign up for a day tour to Tijuana," he said. "And the remaining third are people who live in Southern California just coming down for the day."
Bosquez says WDFA has a minimum 70% share of the U.S. side of the duty-free border trade. The rest of the business is split among independents in different markets.
"I view our competition on the border as other retailers who have discovered the buying power of that part of the world," he said. "For example, Laredo has one of the largest shopping malls on the border, and they cater specifically to Mexican nationals. You also have Service Merchandise, Wal-Mart, K Mart and other huge retailers. They compete for the disposable dollar."
Bosquez, who sits on the board of directors of the International Association of Airport Duty-Free Stores, says the North American Free Trade Agreement has been good for business.
"NAFTA has had an overall positive impact, since it's helped strengthen the Mexican economy, and has put more dollars in the traveling public's pocketbooks," he said, noting that protectionist issues have not come up much, as they have in other industries affecting US-Mexican trade. "Most of our products are not produced in North America. Therefore, any travel within North America would still enjoy duty-free savings. In addition, even US-produced liquors such as a bottle of Tennessee bourbon would still be cheaper in a duty-free store than domestic because of excise taxes."
Asked about his prognosis for the industry, Bosquez was cautiously upbeat: "Looking at the economies of the U.S., Mexico and Canada, there appears to be steady growth in all three markets."