This article first appeared in The Edge Malaysia Weekly on September 10, 2018 - September 16, 2018
IT looks like the duty-free shopping scene at the Kuala Lumpur International Airport is getting a major refurbishment, with global players such as Dubai-based Flemingo International and Dufry AG said to be keen to bid for some of the new spaces available for lease.
The two retailers are reportedly interested in bidding for 8,000 sq ft of core retail space in the International Arrival Hall on Level 3, say sources familiar with the matter.
“MAHB is aware that the retail scene in KLIA is not as vibrant as other hubs in the region. Thus, it is inviting interested parties to participate in an open tender to bid for the core retail outlet,” says an industry insider who works with one of the duty-free retailers at the airport.
“The 8,000 sq ft space will be turned into a walk-through emporium, offering multi-brand core products including liquor, perfumes, cosmetics and tobacco.”
A representative of Malaysia Airports Holdings Bhd (MAHB) declined to comment on whether Flemingo and Dufry were bidding for the retail space.
According to its website, the airport operator held an open tender briefing on Aug 20 for four packages of retail space at KLIA for parties interested in taking part.
The packages are for books and convenience stores; coffee-based food and beverage outlets; casual dining lifestyle concept restaurant; and walk-through emporium concept retail core.
The deadline for tenders is Sept 13, except for the duty-free core product emporium, which has been extended to Oct 11.
The emporium is a consolidation of four outlets, one of which was operated by Malaysia Airports (Niaga) Sdn Bhd (MANSB), MAHB’s duty-free retail arm, which operates under the “Eraman” brand.
MANSB’s business has been profitable over the last two financial years after registering losses in the financial years 2014 and 2015, ended Dec 31.
In FY2017, the duty-free and non-dutiable goods business contributed RM853.7 million or 18.4% to MAHB’s total revenue. The segment’s revenue increased by 15.4% year on year, from RM740 million.
It made a profit after tax (PAT) of RM30.3 million in FY2017, a 60.3% rise compared with the RM18.9 million made in the corresponding financial year.
In FY2017, MANSB contributed 12.8% to MAHB’s PAT.
Up to June 30, 2018, the duty-free operator recorded RM417.4 million in revenue, a marginal increase of 0.82% compared with the corresponding period. Its PAT for the six months was RM20.3 million, compared with RM16 million in the first half of 2017.
The more than 26% increase in profitability during the period shows that MANSB has managed to increase its margins from the sale of duty-free and non-dutiable goods in all of MAHB’s airports in Malaysia.
Enhancing the retail and dining experience in KLIA is part of the Total Airport Experience (TAE) pillar of MAHB’s five-year roadmap to 2020, called “Runway to Success 2020” (RtS2020).
TAE aims to enhance the airport experience for passengers, airlines and retailers, which will in turn lift MAHB’s aeronautical as well as non-aeronautical revenue.
According to MAHB’s 2017 annual report, Malaysian airports have the lowest aero revenue per passenger in the region due to competitive passenger service charges, security charges and landing charges.
Quoting LeighFisher’s 2017 Airport Performance Indicators, MAHB states that Malaysian airports’ aero revenue per passenger, as well as per aircraft movement, is only around a third of the global average, lower than airports in Thailand, Singapore, Hong Kong and Seoul.
Dufry’s Malaysian partner
It will be interesting to see if there will be new duty-free players as their presence could revitalise the retail scene in KLIA.
Besides Eraman, other players include Atlan Holdings Bhd’s Duty Free International Ltd (operating under The Zon brand) as well as Dimensi Eksklusif Sdn Bhd.
Dufry already has a local partner in Ho Wah Genting Bhd (HWG). Its first outlet in Malaysia is located at the Sky Avenue shopping mall in Genting Highlands.
HWG holds a 49% stake in Dufry HWG Shopping Sdn Bhd, the joint venture with Dufry, and the business is treated as an associate investment by HWG. The JV was set up in September last year and started operations in February.
It is not clear how the JV has performed and what is its contribution to HWG’s financials.
However, as at end June, HWG reported a share of loss of RM860,000 in its investment in an associate. The group also gave a RM4 million advance to an associate in the six months ended June 30, 2018.
HWG could not be reached for comment for this article. In its financial report for the second quarter ended June 30 (2QFY18), HWG says it hopes the new venture with Dufry will contribute to its operating profit in the near future.
HWG remained in the red for the six months ended June 30, 2018, albeit with a smaller net loss of RM2.5 million compared with RM2.8 million in the previous corresponding period.
It is too early to tell if the JV with Dufry will change HWG’s fortunes. The 8,000 sq ft core retail outlet in KLIA could be just the boost HWG needs if Dufry manages to secure the lease.
As for MAHB, it is high time for KLIA, which was opened 20 years ago, to be rejuvenated. The refurbishment of the retail area would be a timely makeover.
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