One of LAX’s biggest cash cows is poised to get a new $185 million contract and overhaul its operations.
The contract for DFS North America Inc. to continue operating the 12 duty-free shops at Los Angeles International Airport for another five years is scheduled to come before the L.A. City Council’s Commerce, Energy and Natural Resources Committee on June 13, after having been approved by the Board of Airport Commissioners last month.
Since DFS’s existing contract expired May 31, the committee is expected to expedite consideration of the new contract and quickly forward it to the full council.
In anticipation of serious competition for the contract, DFS sweetened its bid with a pledge to spend $7.4 million to totally remake the shops.
“We want to give them a sense of place, of being unique to Los Angeles,” said Tom McLaughlin, vice president for business development at DFS.
For DFS, the stakes are high, since the $112 million generated in 1999 by the 12 stores is the second-largest duty-free concession contract in the Western Hemisphere, behind Honolulu. In addition, DFS has held the contract since 1982, although this was the first time in 13 years the contract had been put out to bid.
Only one other bidder made a serious run at the contract. World Duty Free Americas spent $76,000 in lobbying fees involving the contract during the first quarter, while DFS spent $44,000. But the company pulled out just before the bids were due, largely because of an internal restructuring that placed less emphasis on Los Angeles, according to John Ek, the Rose & Kindel lobbyist representing World Duty Free Americas.
“Other companies had asked to bid, but were likely deterred by the high minimum guaranteed payments of $36 million to $37 million a year and the need for capital improvements,” said Raymond Anderson, deputy executive director of business development for Los Angeles World Airports.
In the wake of the Asian financial crisis, annual revenues for the 12 stores slid from a 1997 high of $140 million to $104 million in 1998. Since then, revenues have recovered slightly, increasing to $112 million last year and a projected $120 million this year.
Under the planned DFS renovation program, the front of each renovated store will bear the letters LAX to tie in with the $120 million LAX Gateway Beautification project. Inside, McLaughlin said, each shop will have a different theme, picking and choosing from L.A.’s varied lifestyles.
The largest of the stores, located at the Bradley International Terminal, will have one section laid out like a fashion runway, with various accessories displayed along the way.
Another area will resemble a nightclub, with fixtures designed to look like a piano bar. Other stores will have themes like “vintage L.A.” or “eclectic L.A.”
McLaughlin said putting more of a local emphasis on duty-free shops has become a worldwide trend as passengers become more discriminating in their tastes.
“There has been a tendency for duty-free shops to look and feel the same around the world,” McLaughlin said. “You need something more unique to draw people in.”
