Duty Free City: catering to a new luxury shopper on the Mexican border

Entrance- Beauty- Ramp(1)2Describing itself as a “lifestyle destination” for luxury brands located along the US-Mexico border, Duty Free City opened its beautiful 14,000 square foot flagship store in San Ysidro, California with a gala event attended by 500 last November.

Providing a luxurious, service-focused and interactive shopping experience within a sophisticated Spanish Colonial inspired aesthetic, Duty Free City’s CEO Philippe Dray says that the operation is targeting a specific market segment not normally served by the duty free border stores in the area. In fact, Dray calls his operation more of a Downtown Duty Free store, rather than a border shop.
“Our main customer is the person who is traveling back and forth over the border, who was not purchasing in this market before,” Dray tells Insider during a meeting in the company’s Miami headquarters.

“We are actively focusing on the Mexican-Americans living in the U.S. in towns like Coronado, La Jolla, and San Diego, who are traveling to the border to run their business on the Mexican side. Most of these people are wine drinkers, looking for more upscale selections, they may buy cigars, and they enjoy expanding their collections with the breadth and depth of our offerings. This is our target customer and they shop every day in our store,” says Dray, whose background includes extensive experience in the fragrance and duty free sectors.

“It is very important to understand the dynamic: a border shop needs to be competitive with the Mexican market- and these shoppers know the prices; and we need to be competitive with the American side of the market. Because this same customer goes to the upscale malls. This is our potential customer so we must always offer a value,” says Dray.

To Dray, value is more than just price. Duty Free City offers its “guests” unique one-on-one services on-site, including personal shopping, manicures, pedicures and hair styling. The store also provides a designated children’s play area, a café, and valet parking.

“Our goal is to offer a proposition that our shoppers will not find elsewhere. This is where our services come in. We have invested in spa and beauty machines to demonstrate the products and provide incentive ‘pampering,’” he explains.
“We are utilizing our spa services to sell products, to establish relationships and give better value to our customers. We have competition on the other side of the border too. For example, Mexican salons offer good quality nail services at lower prices than we do in the U.S. So we decided to provide these services as part of the shopping experience at DFC. When our guests purchase a certain amount of products, we offer complimentary services as one of our promotions.”
Although it carries a lot of expensive merchandise (“we sell a few pairs of $600 sunglasses every month,” says Dray), the Duty Free City store operates in an environment where shoppers are very price conscious, very price sensitive.

“We are trying to provide something for every generation, so every week we have a featured product or set, with a lot of different incentives. These are prominently displayed with attractive merchandising. We are using these items to build relationships,” says Sonia Acevedo, Duty Free City Director of Merchandising and Procurement.

Duty Free City sees building such relationships as key to its success.

“We devote a lot of time going into the community. We use a Duty Free ambassador, who brings people into the store, sometimes organizing shopping parties for groups from San Diego and Tijuana. Our Ambassador is selling and developing relationships. This has been very successful for us,” says Dray, who says that the formal Loyalty Program is first starting in April.

Opening challenges
Being the new operator in the San Ysidro area, and trying to provide a unique offering, has not been easy, admits Dray.

“The soft opening was challenging. Business was slow until we started our promotions and posted them on Facebook and other Social Media. Our opening party in November was attended by some 500 people, so we got a boost from that. We also advertised on TV for three months in Mexico and San Diego. We did radio, we did TV, we used outdoor pole banners. We still have an advertising campaign.”
The change came the week-end of Black Friday for DFC.

“We did a huge promotion on Black Friday (Nov. 28) and to tell you the truth, we were surprised by the incredible response – it brought a tide of people and they wanted to scoop up everything we had,” says Dray. “This promotion changed the world for us.”

The DFC Black Friday promotion did not offer discounts, he stressed. “But we gave value – in this case we did something novel with gift cards.”

“This created the first tide of shoppers, which spilled over through the entire month of December. December sales were incredible. I almost say that we really opened our doors on Nov. 28!”

“This was the turning point for us. But, most importantly, we continue to push forward with our promotional items, we push forward with our special activities, we push forward with our ambassador program.”

Meanwhile, Beauty is DFC’s number one category, with 65% of sales. Sales of hair care and men’s grooming products are also especially strong. Spirits generates substantial sales also. The offer includes a portfolio of about 350 wines, with a maître’d to help customers make selections. Everything else is growing.

One of DFC’s biggest challenges has been finding the right staff, employees that understand the concept of luxury. More and more, the store has been turning to the hospitality industry for its personnel rather than other retailers. Training is critical, says Dray.

“Having said that, we have a phenomenal team. They establish relationships with our customers, and the sales come automatically once the relationships are established. This is much more important in a store like ours where you see many repeat customers.”

“Everything that we are doing – with our team, with our store design, with our personal services — is to develop a strong connection with our customers and provide them with a personalized and enjoyable shopping experience in a beautiful, relaxing environment. We believe that we are servicing a different customer than the other stores on the border. We cannot compete with them and they are very good at what they are doing,” insists Dray.

More stores in the pipeline

Dray says that DFC has already entered the next phase in its development. He noted that they have resources and the foresight to be in it for the long term.

“We are opening more locations– we are moving forward with four stores in another state this year alone– but the main goal is not just to open the stores, but to be successful with them. The first phase calls for opening 25 stores and we plan to do that in five years. We are planning to build a flagship store on the Northern border in 2016, and already have several models under development.”
Despite the initial challenges of building the business at the San Diego/Tijuana border crossing, Dray is very bullish about the potential of the market.

“We believe that suppliers appreciate that the high end border business can be bigger than the airport business. Look at the numbers. The total U.S. airport business is 100 million international passengers annually. Here in San Ysidro, we have 110 million people pass through every year; it is even bigger. And duty free can capture more of this potential market. We can promote more effectively, we can offer more value; this is what we see ahead.”

As for Duty Free City itself? Dray says, “We know that we have a huge potential, and we know that we will reach it. It is only a question of time. We are working hard to make it happen as quickly as possible. “We have made an enormous investment in San Ysidro. At first, some people said we were crazy to build such an expensive, luxury store on the southern border. As our success grows, more and more members of the industry are seeing how DFC’s concept is innovative and visionary, and how it works. We look forward to the future with great optimism as we continue to refine and develop our unique brand in other locations.”