It is now more than a year since Ross Khaledi, founder and CEO of U.S. border duty free retailer HKG Duty Free, bought back 100% control of the company from the group established by his family in Laredo, Texas in 1977.
“With this ‘new’ company we will grow and diversify further,” Ross Khaledi recently told TMI, as he discussed the company’s history and what he sees ahead.
Founded in 1977, the parent HK Group began as an electronic sales operation based in Laredo, Texas. Today, H.K. Global Trading, Ltd is a successful limited partnership run by Ross Khaledi, with business ventures along the U.S./Mexican border that include electronics distribution; duty free stores and supplies; freight forwarding, in bond, transportation, general construction and real estate development.
“You know HK Global Trading as a Duty Free retailer on the southern border, but we are a much more diverse company. We have construction and home development and design businesses in Texas and Florida. We have a finance company, real estate companies, warehousing facilities, and commercial shopping centers. We are also an Electronic authorized retailer for Samsung, TCL, and Hisense among others.
In 1998, HKG Duty Free was formed to service US Southern Border customers crossing daily into Mexico. The first store opened in Laredo, one of the largest land border crossings in the U.S., processing over 15 million people each year.
The company is headquartered in Miami, where it relocated to a 60,000 sq ft. warehouse and offices in Medley late last year.
“The new warehouse offers us better distribution opportunities,” explains Khaledi. HKG also has a Laredo, TX Distribution Center with a 100,000 sq ft warehouse, an In-bond team, and logistics operations.
“As HK Global Trading grew, we understood that we may someday need to separate our interests. That day came over a year ago, when the partners looked at each business entity and decided where our interests lie,” Ross Khaledi tells TMI.
“As business partners, “we divided the companies according to our interests. In addition to other divisions, I chose to move forward with, and expand, the duty free retail division…which I plan to grow and diversify further,” he continued.
HKG Duty Free currently operates seven U.S. border stores in San Ysidro and Otay, CA, and El Paso, Laredo, (2), and Hidalgo, TX, Calexico, CA opening in April and two airport stores in Mexico.
“We are researching other crossings in TX and AZ, an additional store in the San Diego area, and locations on the border in Mexico. Currently in Mexico, we operate duty free stores in Queretaro and Puebla International Airports and are negotiating for duty free and duty-paid spaces in other Mexican international airports.
Khaledi says that one of the company’s goals is to expand into the U.S. airport market with duty free and duty paid stores. “We have an experienced team dedicated to researching these possibilities,” he says.
In fact, Khaledi confirms that they are in conversation with a smaller U.S. airport that is looking for an operator that is not considered one of the major players.
“They prefer dealing with someone on a more personal level; a company that can offer their passengers a customized assortment, which we can do,” he adds. We were offered a space, but the location and size did not meet our needs. We maintain interest and are waiting to see another more suitable space.
Catering to a well-known clientele
Further down the line, Khaledi plans to re-brand the stores, but for now, he will keep the established name. “We first want to refresh the spaces and strengthen the current business with increased assortments and new brands before we take that step to rebrand,” he says.
Currently, 95% of the HKG Duty Free business comes from Mexico, which has allowed the company to fine-tune its assortments and marketing to best appeal to this known customer.
“The person who crosses daily for work and knows our stores is our key customer. We have a very high level of repeat customers and have built a data base due to their loyalty. Our marketing team is always experimenting with new ways to attract customers. Promotional flyers do not work anymore, so we are transitioning to more digital formats,” says Khaledi.
“We are trying to focus on what a customer purchased in the past, reaching out to them in a personal, strategic manner. We lead with the product of their interest, and then expose them to our other promotions.”
HKG Duty Free also uses its digital platforms including QVC and HSN, to cater to its electronics and small appliances customers in the U.S. market.
Differentiating the product assortment
The top-selling categories in the HKG Duty Free stores are liquor and tobacco, with fragrances a close third. As a point of difference, HKG manufactures a few tobacco brands, and retails them at very competitive prices.
“Our Tobacco brands, Montana, and Pitbull, are high quality and made in the U.S.A. Those are our top sellers in that category,” notes Khaledi.
The company’s emphasis on electronics is another differentiation from other southern border stores.
“Televisions are the bestselling item within the electronics category, but we want to grow the entire department,” he says.
In addition to licensed distribution of Samsung, LG and Hisense through such channels as Amazon, Walmart, NewEgg and Vanns, HKG distributes electronics in the Caribbean and Latin America and is the authorized agent for Rent to Own.
“We find that there is a need to expand this category in our retail market. Since we have the resources, we can offer competitive prices. This will distinguish us from the competition,” argues Khaledi.
The Future Vision
Looking ahead, Khaledi recaps his vision as rebranding the stores and diversifying the assortments to meet the consumer’s needs. He has been expanding his management team with such experienced travel retail specialists as Leo Dotolo to head up sales and development and Ricardo Arbelaez, Vice President of Retail Operations, joining long-time employees like Amanda Nunez, the beauty category manager. Additionally, Khaledi’s children are stepping into roles within the company bringing fresh ideas in marketing, finance, and operations.
“This is the future of our company,” he says.
“We want to increase our presence on both sides of the southern border, expand to the northern border, and acquire retail space in U.S. airports,” says Khaledi.
“We are also looking into new private label opportunities and new brand distribution. I brought in Leo Dotolo, who is experienced in all aspects of duty free retail to oversee these projects. I have a strong and devoted team that is working hard to help HKG reach new heights. I am anxious to see what we can accomplish,” he concludes.