Neutral under new ownership looks ahead with confidence
One of the most important news stories in Latin America in 2019 was when Panamanian company Top Brands International acquired Neutral Duty Free, the largest duty free chain in Uruguay, that July.
The acquisition made Top Brands one of the largest duty free players in the region, with 80 stores throughout Latin America and the Caribbean.
“This is a very strategic move for us,” Top Brands International President Danny Yohoros told TMI at the time of the acquisition. “We see tremendous potential ahead for the Neutral stores on the border. The economy in Brazil is getting better and with the synergies that will accrue with our existing companies, we will bring greater strength and value to the business.”
Top Brands had already been operating duty free shops on the border between Uruguay and Brazil, and had the experience needed to make the business go forward. The border business had been challenged in recent years by the weakness of the Brazilian economy and its currency, but Yohoros brought in experienced and respected executive Marcelo Montico
as CEO to run the merged Neutral by Luryx stores. Then came the COVID-19 pandemic and subsequent border closings.
Montico joined Neutral as CEO in January 2020, as the company was completing the final stages of the restructuring process after its acquisition by Top Brands. Montico’s brief was to review the whole Neutral operation, located in the six Uruguayan cities where duty free sales are permitted, and merge it with Top Brands’ existing Luryx stores.
The year started well, with good sales at Neutral in January and February. The economic situation in Brazil was improving and in spite of new duty free stores on the Brazilian side of the border, industry players were feeling more optimistic than in previous years.
Montico recalls the buoyant expectations: “Sales in all categories were doing well and we exceeded our objectives in the first two months of 2020. The Neutral by Luryx stores were merging nicely with the two original Luryx stores, the new structure was falling into place and the outlook was positive,” he said.
The first case of COVID-19 in Latin America was discovered in Brazil at the end of February and the Uruguay government closed most of the country’s borders in mid-March. Montico notes that the land borders were partially open but that vehicle traffic and tourism fell drastically.
“Our stores closed at the time but reopened in June and people from our sister towns on the Brazilian side of the border were able to shop with us. But as the situation in Brazil got worse, traffic numbers fell further. We kept 7 of our 9 stores open, although we adjusted opening times and staff levels according to traffic flows,” he explains.
The drastic fall in traffic at the border prompted the Neutral management to undertake a major review of the business in order to reduce costs as much as possible. The duty free business throughout the region was suffering immensely as a result of the pandemic.
“We estimate that the total travel retail business in Uruguay fell by about 70% last year,” comments Montico.
“According to our internal measurements our own business fell by 45%. Although these figures are not very attractive, we have taken defensive action, reducing our operating costs in line with current income levels. As a result, we are convinced that when the market eventually reopens fully and traffic levels approach normal, we are in a great position to offer consumers what they want and take advantage of growth opportunities as they appear.”
The Neutral stores have always endeavoured to give consumers the best shopping experience, and in the post- COVID era that includes safe shopping with all the sanitary protocols in place, as well as new contactless options.
“While the pandemic lasts, our absolute priority will be to preserve the health of our customers and employees, ensuring the sanitation conditions of our stores and therefore deliver a superior shopping experience,” stresses Montico.
“We have combined technology with the [safety] protocols so shoppers can go onto our website and make reservations to pick up merchandise totally touch free. When they come to the store all they have to do is sign the credit card voucher –with minimal contact with our sales staff. This contactless pickup concept is working really well. Clients indicate the day they will pass by the store to pick up the merchandise, and our customer service team wait for them in the parking lot with their purchase. The client receives the purchase in his car, signs the credit card voucher and everyone is happy.”
The leisurely border shopping of the past has substantially changed since the pandemic. Customers now come in, buy what they want, and leave. With reduced dwell time, Montico says it is more critical than ever to increase the value of each ticket.
“Dwell time has been reduced from just under 40 minutes to 16 minutes so clearly you have to make sure that you can get messages to customers before they come into the store.”
One of the most important messages is about value. Exchange rates are always critical for border duty free stores and the volatility of the Brazilian Real over the last few months further complicates purchasing decisions.
“We track the prices on the Brazilian local market and we make clear to potential customers where we offer added value. Right now, consumers see better value in whisky, beer and other drinks since the prices of some brands of perfumes and cosmetics seem to be artificially low in the Brazilian domestic market,” says Montico.
With people more and more pre- planning their purchases, Neutral is focusing its social media communication on value and promotions that offer better prices when more units are purchased.
“In store, we look to promote across categories to get the ticket value a little higher. We also attempt to entice the customer into making an unplanned purchase with additional promotions instore.”
Between the restructuring, the operational efficiencies, and the new technologies Montico is confident that when travelers return to the border stores in greater numbers, the Neutral by Luryx stores will be in an excellent position to capitalize on an increase in sales.
Montico contends that the group will also benefit from incorporating new brands and from innovating what they sell and how they sell it. And he has great confidence in his team: “Neutral’s greatest competitive advantage is its human team; each one of the members understands that the only way out of this crisis is to do our best to continue offering the best shopping experience in the channel,” he promises.
“The whole industry has been affected but we have all shown in the past that we can survive difficult situations.
“We are very optimistic about the future of our operation, first and foremost because of our own strengths as a group. We have a great team of people which is crucial in this business.
“We are also very optimistic about the near future because human nature determines that after a long period of restrictions in mobility and consumption, as soon as the consumer can regain his ability to act freely, he will increase his consumption as a reward mechanism or gratification.
“In 2019, Neutral overcame some major financial challenges and now under the Top Brands umbrella we are in a very strong position. We recovered solidity necessary to grow in adversity, empowered by a human group that makes a difference every day when we can serve our clients.”