Thu. Jun 8th, 2023

More Chinese airports with large domestic passenger counts are exploring the luxury route to boosting commercial revenue. One of them, Chongqing Jiangbei International Airport, has initiated a string of boutique openings and awarded a new multi-year fashion concession.

In what is said to have been a close contest, DFS Group, owned by French luxury conglomerate LVMH, won the five-year contract to operate fashion, watches and jewelry retail in the domestic Terminal 3A. Chongqing Jiangbei Airport Authority announced the winner on Monday. It formed a joint venture in 2018 with Singapore’s Changi Airports International to manage the non-aeronautical business at the gateway.

From November, DFS Group will operate 13 branded boutiques covering more than 16,000 square feet. The travel retailer will take possession of the premises in September 2022, and plans are in place “to fully unveil its offering before Chinese New Year 2023.”

DFS says that it will have a line-up of 18 luxury brands, including some that will make debuts at the gateway. The airport authority has already secured leading international names including Burberry, Cartier, Gucci and Louis Vuitton.

Bringing more luxury to domestic airports

Benjamin Vuchot, DFS chairman and CEO, said that the company’s bid carefully pulled together elements such as store design, retail operations, merchandising and marketing, with a strong focus on luxury positioning. “We also leveraged our strong relationships with some of the best brands in the world,” he said in a statement. “As China’s borders remain closed to international travel, providing more avenues for domestic retail has never been more critical.”

The Chongqing deal is a breakthrough for DFS on the Chinese mainland because that is where the spending is right now. The travel retailer was hit exceptionally hard by the loss of international Chinese tourists in places where it has stores, for example, downtown Hawaii, Hong Kong, Macau and at U.S. west coast airports such as Los Angeles and San Francisco. As a result, it has under-performed its sister retailer Sephora, currently extracting itself from Russia, since the start of the pandemic. Both companies are part of LVMH’s Selective Retailing division.

“I am delighted that we are able to find new ways to serve Chinese customers in their home location, as part of our renewed efforts to grow our footprint in this critical market,” said Nancy Liu, president of DFS China. “Less than two years after re-entering China with our Galleria store in Hainan Island, we are swiftly covering ground.”

Maybe so, but luxury spending in China is not a given. LVMH—led by billionaire Bernard Arnault, at several points last year the world’s richest man—is likely to take a big hit in Chinese sales in the quarter ending June due to strict Covid-19 clampdowns imposed by Beijing (the results will be published at the end of July). The world’s biggest luxury group had already seen the impact of restrictions in Q1 due to restrictions that started in March.

Furthermore, China’s appetite for luxury may be at a crossroads given the economic climate. And LVMH’s focus on the higher end of the market has also seen some backlash in China. Nevertheless, the Chongqing Jiangbei deal is a new, and potentially big, sales spot for DFS, meaning incremental revenue which can’t hurt. The airport processed almost 36 million passengers last year well ahead of hubs like Dubai International, Amsterdam Schiphol and Paris-Charles de Gaulle where luxury remains a big driver of retail sales.

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