Fresh out of university, Charles Chen joined China Duty Free Group (CDFG) 30 years ago, working his way up the career ladder while gaining experience across all facets of the business before being appointed President in December 2016.
Two years into his role at the helm of the company, Charles has already overseen impressive improvements and change, but he has his sights on making CDFG the best in the sector.
With its strong partnerships, global expansion plans, and access to the affluent Chinese consumer, this Chinese company, with its mission to ‘share the joy of shopping’ and ‘extend the enjoyment of travel’, is well-placed to do so.
“The strategy for our company is very clear,” explains Charles. “In my mind, the focus is mainly on Chinese customers, because that is the major potential for duty-free companies – they are all looking for the Chinese customer.
So, my strategy for CDFG is that in the future we will establish a duty-free store wherever the Chinese person will go. In the next few years we really hope to be number one in the duty-free industry.”
A group is born
CDFG, established 35 years ago, is in a unique position as the only state-owned enterprise authorised by the State Council to operate duty-free business across China. During its three decades operating duty-free retail across China and Asia, CDFG has rapidly developed, establishing more than 200 duty-free stores – in airports and at borders, in-flight and on-board, at ferry terminals and railway stations, for ocean shipping supply and diplomats, and downtown duty-free stores.
It has wide coverage, offering retail shopping opportunities for travellers in stores across 30 provinces, municipalities and autonomous regions of China.
A new frontier in duty-free shopping was entered into when CDFG successfully began operating in Hainan in 2011. CDFG Sanya Downtown Duty Free Store was the first off-island duty-free store in China. The high-end shopping mall with world-class luxury labels lighting up its promenades, and with its professional customer service, has made a name for itself, attracting tourists from China and abroad.
Not to mention, the Haitang Bay Duty Free Shopping Complex, the largest duty-free business complex in the world, another milestone for CDFG’s history.
The company enjoys well-established, long-term partnerships with more than 300 luxury brands – including the likes of Moët Hennessy, Dior and Lancôme – to offer thousands of commodity types across a range of product categories. A force in travel and duty-free retail, CDFG is part of the country’s biggest tourism conglomerate, China National Travel Service Group Corporation. And, as of 2004, the two groups fall under the jointly set up CITS Group Corporation.
Much has changed in the industry and the company since CDFG was founded in 1984, and Charles has been there practically every step of the way, having joined in 1987 – so who better to be appointed as president.
After graduating from China’s “number one business college”, the University of International Business and Economics, Charles recalls CDFG at that time seeking a candidate familiar with international business and fluent in English. “I have been here for all of the developments of China Duty Free,” says Charles. “Before taking the position of president of this company in 2016, I held many positions including manager, director, and general manager.”
Charles recalls 2016 as being a time of great prospect for the company. “Actually, I had never seen the kinds of opportunities as I saw then,” he recalls. At that time, adds Charles, there was the chance to win back the 10-year duty-free retail contract for Asia’s main airport, Beijing, which had once been in CDFG’s hands.
This was closely followed by the announcement for the Hong Kong Airport duty-free contract, and not long after, the Shanghai Airport, explains Charles.
“So at that time I saw a great opportunity for us. We had the chance to go into a lot of the big airports’ duty-free stores. Because, before then, CDFG managed many stores, of course, but they were relatively small compared to these bigger airports. And Hong Kong Airport, in particular, is very important for us, for its position in Asia, and because of this, it’s seen as a real international airport.”
These contracts are game-changing for CDFG. “We have won the bidding for Beijing Airport and Guangzhou Airport, and having merged with Sunrise, taking 51% ownership, we have recently signed a seven-year agreement with Shanghai International Airport.” The September 2018 merger of Sunrise Duty Free into CDFG has certainly led to benefits for the company, says Charles, including a more diversified product range and benefits of scale in product procurement.
The Chinese traveller
The additional airport contracts have not been the only exciting prospects for Charles and CDFG. Upon stepping into the company president position, he recalls identifying another great opportunity for the group, and one that continues today: “The marketing potential for Chinese customers.”
He explains, “Every year, it is developing so quickly. The number of Chinese tourists going abroad is number one in the world, and they spend a lot. I think there is great opportunity and great potential,” he says, noting that the total spend for the Chinese tourist is much higher (US$260 billion, he says) than CDFG’s China sales, which are expected to exceed US$4.5 billion in 2018.
Patti Chau, the Asia–Pacific Regional Director of Airports Council International said, at a retail conference held in Singapore in 2018, that global airport passenger traffic is expected to double to 15.7 billion people by 2031.
“China is expected to soon overtake the US and become the world’s largest aviation travel market. More than four billion passengers will transit through China by 2040,” she said.
Chinese people are not only travelling a lot; they are spending a lot more than everyone else, often opting for duty-free purchases. According to research from Swiss travel retail research group M1nd-set, 40% of Chinese travellers make purchases in duty-free shops, compared to the global average of 22%. Interestingly, almost 90% of Chinese shoppers plan their duty-free shopping beforehand. In addition, while the average duty-free shopper’s spend is US$146, for Chinese consumers it is US$232.
These are exciting figures for a Chinese duty-free retail company with plans to expand globally and with a raft of new major airport contracts under its belt. According to a GlobalData report, ‘Global Duty Free Retailing, 2017–2022’, the global duty-free market grew 4.5% in the period between 2012 and 2017, with US$52.9 billion worth of sales in 2017 alone.
Considering the boom in Chinese travellers and this consumer group’s penchant for luxury goods, one can see how Charles is poised to grab this opportunity and continue steering CDFG to success.
CDFG is well-placed to increase profits, especially given the high amount of Chinese tourists, and seeing the high sales in other Asian nations such as Korea and Thailand, says Charles. “We have a very good chance here in China, if we can do it properly.”
2013 – Ranks among China’s Top 500 Service Enterprises
2013 – Honoured as ‘Advanced Central Enterprise’
2012 – Ranks among China’s Top 500 Service Enterprises
2011 – Honoured as ‘Advanced Central Enterprise in Ideological and Political Work’
2011 – Wins 2011 Best Merchant and Management Contribution Award of Xiao Shan International Airport
2011 – Honoured as ‘2011 Capital Civilized Enterprise’
2010 – Ranks among China’s Customer Satisfaction Model Brands in Service Industry
2010 – Ranks among China’s Top 500 Service Enterprises in 2010
2009 – Honoured as ‘2009 Advanced Central Enterprise’
2009 – Ranks among China’s Top Service
2009 – Elected as one of ‘2009 China Best Human Resources Management Companies’
2009 – Rated as ‘A-Class Tax Credit Enterprise’ by Beijing Local Taxation Bureau
2007 – Wins the Title of ‘2007 China Top 100 Model Enterprises of Integrity’
2006 – Wins the Title of ‘2006 China Top 100 Model Enterprises of Integrity’
In recent years, CDFG has been expanding globally, establishing branches and stores in Hong Kong, Macau, Taiwan and Cambodia. These stores serve as platforms for international business expansion, allowing the group to cut a clear path towards internationalisation as well as diversification.
Charles expresses the Group’s continued interest in international airports, listing South-East Asia, Australia and New Zealand as regions it is looking to enter into. The focus is always on the Chinese customer, and CDFG will go where they go. “Our main customers are Chinese. We are a Chinese company and we know the behaviours and habits of the Chinese person,” enthuses Charles.
In the two years since Charles became president, he has focused on building the right team and hiring staff, including onboarding a new COO and CIO among others, he explains. “We were lacking the really experienced, international-level professionals before.”
Charles also lists an improved relationship with the government as an achievement as well as an improvement in revenue. “We have increased by a lot. At the end of 2017, compared to 2016, we had improved by 65%. It’s a crazy figure.”
Five areas of focus
Looking to the future, Charles identifies five important areas of focus for improvement for himself and his team at CDFG. First is operations. Charles points to the experience managing international operations, such as the duty-free retail of Hong Kong Airport for the past year. “It’s completely different to when we just managed a store within China. The operations are very important and must be extremely professional.
“The second major focus is on IT,” says Charles. There is enormous potential for brands and retail to work together on technology-led innovations to harness passenger data, for example. “IT really is very important. In the past it was a smaller matter, but now, suddenly it has not only doubled, it has tripled.”
The third focus is logistics, perhaps unsurprisingly for a company experiencing rapid growth and international expansion. “We are evaluating how to manage the logistic systems and we are learning from others. Because we have 2,149 different stores the logistics can be a headache, and this is an area we look to improve on,” explains Charles. “The fourth crucial area is marketing, and fifth is merchandising.”
During the 2017 Chinese New Year Golden Week holiday, tourists flooded into Sanya to spend their vacation. The city received 957,300 tourists, an increase of 14% year on year. The total tourism revenue was RMB9.06 billion (US$1.3 billion), an increase of almost 20% from the previous year.Duty-free shopping maintained its popularity, and the CDFG Sanya International Duty Free Shopping Complex recorded a strong business performance, registering more than 250,000 customers, up 26%. Duty-free sales revenue reached RMB290 million (US$41.7 million).
Though the nature of duty-free shopping is unique in the way it captures the travel consumer, Charles remains fully aware of shifting social trends, and in particular the growth of ecommerce. And despite the traditional shopping nature of duty-free stores, Charles and CDFG have innovative ideas for the future of shopping in this space.
“Ecommerce is affecting us because it is very popular within China in particular,” admits Charles. “So,” he reveals, “we have entered into an agreement with the number one online company, Alibaba.”
The agreement, made in November 2018, will see CDFG’s traditional brick-and-mortar store operations work in conjunction with Alibaba’s online platform and third-party online payment service, creating a newly integrated online and offline tourism ecosystem that aims to maximise the consumer experience, say the two companies.
“We have noticed, particularly with young people, that they prefer to shop using an app or their mobile phone,” explains Charles. “So, in the coming years this is one of the points that we will be focusing on.”
The method for this will be to select one to two stores for testing before rolling out any initiatives across the whole of China. “It’s easy for us to do that because we are already covering the market. China Duty Free has more than 80% of the market share. We have stores in all locations; cities, main airports, stores, and even in-flight shopping and railway stations.
“The idea is that people can easily use ecommerce to make an order, perhaps through their phone, and then pick up their goods in store. We even think in the future we may be able to operate home delivery. So, imagine, people can make a purchase when going abroad or while they are travelling overseas, and when they return, their new goods have been delivered to their homes.”
Trust and mutual understanding
Overall, Charles asserts that one of the main reasons he has been able to improve CDFG to the level he has in the past two years is due to the strong relationships he and the company have with their suppliers. “We have very good relationships with all of our suppliers. I think that it’s very important for the two parties to be working closely. I value our relationships with not just our key suppliers, but all of our suppliers,” he says.
“I always say, the supplier and the operator, we are in the same boat. The final goals for the two parties are the same – they want to sell more product, and we want to sell more product. And when this happens for both of us, it works in our favour. This may mean, for example, working together on brand activations to enhance the customer experience and create a strong and enticing reason for a customer to stop in-store before boarding their flight.”
“I always say, the supplier and the operator, we are in the same boat.”
To ensure these good relationships, Charles believes in the importance of the win–win mentality and holding regular meetings for good long-term strategic partnerships. Integral to these strong working relationships is always honesty and trust, insists Charles.
“First, we should trust each other. I always say, in this world no person is stupid – we should put everything on the table, there should be no surprises. I find most of our suppliers are happy to work this way. Second, we should be supporting each other. We should get to know each other’s difficulties or problems and support each other through these.”
CDFG is a company that has seized opportunities and grown in line with the development of China’s economy and tourism industry. It has strategised for growth beyond China’s shores, expanding its sales network and improving its services and offering while focusing on its professionalisation, too.
“Three decades of exciting developments have witnessed the growth of China’s duty-free industry and, more importantly, encouraged CDFG to compete in the international market with boldness and resolution, and tempered the corporate character of always having the courage to go beyond with cultivated groups of talent who are determined to accomplish our missions,” said Charles in his president’s statement.
It’s clear CDFG’s president feels positively about the duty-free industry and its future, particularly with the increase in Chinese travellers and the growth of the luxury market. “I love the duty-free business very much,” Charles tells The CEO Magazine.
“I want the best life for the Chinese person so I will devote myself, all the time, to the China Duty Free business.”
“The purchasing power for the Chinese person is very strong and I really think we can do something for China. I want the best life for the Chinese person so I will devote myself, all the time, to the China Duty Free business.”