Sakal Duty Free by asafwewe

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									January 2006                                               BEN GURION AIRPORT • Sakal Duty Free

Sakal Duty Free
a family business that moves
with the times                                                                                       By Hui Min Neo

Though Tel Aviv Ben Gurion International Airport’s new Terminal Three is spacious
and attractive, its design has created problems for Sakal Duty Free. But the retailer
is fighting back to drive up spend and penetration.

      ou can’t miss them, and you don’t have to read
      Hebrew to understand them. At bus-stops along
      the popular downtown streets of Dizengoff, Ben
Yehuda and Arlozoroff, the Sakal Duty Free posters shout
the message: “$200”.

One poster features an LG DVD recorder for US$200.
Another shows a Hyundai 25in flat-screen television,
also at US$200.

“The $200 price-tags are famous here,” Sakal Group
President Solly Sakal tells The Moodie Report in his              Solly Sakal: “We
office behind the company’s 1,000sq m electronics duty             don’t treat our
free store at Tel Aviv Ben Gurion International Airport.             customers as
“If you ask people in Israel what is $200, they will tell you       one-time-only
Sakal Duty Free.”                                                      consumers”

This price-tag is at the heart of Sakal Group’s strategy in     “Sometimes we even buy items at US$180 and sell them
travel retail, and over the years the company has spent a       at US$200. There is no point in pricing them any high-
good deal of money on campaigns promoting it to the             er, because Israelis will not buy. We also do this to create
Israelis who make up the bulk of its customers.                 interest. Maybe we don’t make money the first time, but
                                                                maybe we do the second or third time. We don’t treat our
Sakal Duty Free had seized on the US$200 figure as it is        customers as one-time-only consumers,” reveals Sakal.
the limit on gifts that each person is allowed to bring into
the country. Any item exceeding this price will be taxed        Because the Israelis’ most frequented destinations tend to
in full – not just on the value over US$200.                    be the US and Europe, Sakal notes that the company has
                                                                always tried to make sure its prices are lower than those
By promoting its products at this price limit the com-          at these destinations. “Regardless of what it costs us, we
pany has not only driven a lot of spend, but has also cre-      are selling at -10% below US retail and between -40%
ated one of the most savvy groups of duty free shoppers         and -50% below European prices,” he says.
in the world.
                                                                And consumers have been voting with their wallets. The
Thanks to high import duties in the past as well as a sys-      Sakal Group now has an annual turnover of some
tem which allows travellers to buy on departure and col-        US$250 million, and it is ranked the second largest retail
lect on arrival, Israelis have traditionally made up a large    chain in Israel (excluding food retailers). Its headquarters
proportion of duty free shoppers at Ben Gurion. In fact         are located in a spanking new building in the Ramat-
Israeli consumers at Sakal Duty Free outnumber for-             Hachayal area, in a street chock-a-block with electronics
eigners by 20 to one.                                           and hi-tech firms.

The Moodie Report                                                                                                      45
BEN GURION AIRPORT • Sakal Duty Free                                                                 January 2006

Sakal Group and James Richardson are the two dominant           for certain electronics brands it was able to negotiate
forces in Israeli duty free. Sakal now runs the electronics,    specially good prices.
toys, watches and children’s fashion concessions at the
year-old Ben Gurion Terminal Three.                             Carry on buying
                                                                The company runs advertising campaigns to persuade
Sales at its electronics, toys and watches duty free stores     consumers to continue buying at the airport. Commer-
in T3 will reach US$65 million by year-end, about               cials are run regularly on television, billboards line the
+11% more than in 2004, Sakal says. Turnover for the            streets and leaflets are distributed as newspaper inserts.
children’s clothing store will finish at about US$1.2           Catalogues are also sent direct to every family in Israel
million for the year.                                           twice a year.

The knack                                                       Even though the economy began improving last year
The family empire began in 1979 when Solly and Meir             following three years of recession, the appliances sector
Sakal founded Sakal Brothers to supply duty free products       has been shrinking in Israel. Sakal reveals that the com-
to diplomatic staff and multinational forces. The broth-        pany is looking at downscaling its domestic electronics
ers developed a knack for picking out products popular          operations in order to concentrate on driving up sales at
with their customers, and when the opportunity came up          its 1,000sq m electronics duty free store.
for them to bid for a sports store at the airport they did
so. In 1990 the company opened its 67sq m sports goods          He notes that the majority of Sakal’s airport duty free
concession at the airport, marking its entry into con-          sales are for products priced at US$200 or less. “Duty
sumer travel retail. Since then it has expanded its business    paid products only make up about 15% of our turnover.”
not only in duty free but also in domestic retailing.
                                                                As Israel allows a collect-on-arrival service, the company
The beginnings in that first sports store were fairly hum-      has developed a sophisticated system that can track down
ble. Sakal notes that in the first year the company paid just   an order within seven seconds when a customer comes to
US$15,500 to the airport authority. But within five years       claim his purchase. It also offers a delivery service direct
the concession fee had skyrocketed to US$7 million,             to the consumer’s home.
which was 15% of the turnover.
                                                                But it seems that smaller items, not big appliances, are the
“According to a survey, 50% of Israelis were delaying           current hits. Sakal notes that consumers are buying more
their purchases of sports footwear until they had to fly        digital products these days, such as cameras, mp3 players
overseas. We were selling over a million pairs a year,”         and portable DVD players.
recalls Sakal.
                                                                While it certainly offers a wide array of products, the
That success helped the company to gain a concession to         most eye-catching element of Sakal’s electronics store is
sell electronics products at the airport in 1997. “That was     probably the prices. The top sellers and their prices are
when we decided to use US$200 as a motif.”                      stacked up along a black tape running on the store floor
                                                                emblazoned with $200 motifs.
The company began selling appliances like refrigerators,
washing machines and televisions. VCRs and even com-
puters were going for US$200 a piece. “We were selling
at a third of the prices in the local market,” says Sakal.

Local retailers were not impressed, but it was clear that
Sakal had created intense competition in the market for
such goods. The government eventually took action to
reduce import duties for the domestic market.

Despite this attempt to level the playing field between
Sakal Group and the high street, the company did its
sums and found that – even with taxes and duties includ-         Sakal’s 1,000sq m electronics duty free store: eye-
ed – it was still able to offer a more attractive price than     catching displays at eye-catching prices
the local markets. As the exclusive agent and distributor

46                                                                                                     The Moodie Report
The ENgineers of

                                                              porsche design
Athens Berlin Beverly Hills Dubai Hamburg Kuala Lumpur Kuwait Leipzig London Osaka South Coast Plaza Tokyo
Also present at the following airports: Dubai, Frankfurt, Singapore, Vienna
BEN GURION AIRPORT • Sakal Duty Free                                                           January 2006

                                                         Sakal Duty Free Deputy Manager Daniel Gollard points
                                                         out that ‘best-sellers’ refers to products which are mov-
                                                         ing at a rate of 500 pieces and more a month. He adds that
                                                         the store also features a large proportion of exclusives,
                                                         giving further incentives for Israelis to buy at the airport
                                                         instead of downtown.
A tale of continuous growth
                                                         When The Moodie Report visited the store the compa-
The company that was to develop into the Sakal           ny was in the midst of filling a wall with 60 LCD flat-
Group began as Sakal Brothers when it was estab-         screen televisions. “This is our project for the month,” says
lished by Solly and Meir in 1979. This company           Gollard. “We want to fill this wall with 60 TVs, ranging
supplied duty free products to embassy staff and         from the smallest to the biggest screens.” The store is sell-
military forces stationed in the region.                 ing about 250 LCDs a month now, but Sakal wants to
In 1990 the company entered the travel retail            increase this to 500 a month after the wall is completed.
market when Sakal Brothers won a tender to
operate the sports store at Ben Gurion Airport;          Since the opening last year the company has increased its
Sakal Sports was established. In 1994 the compa-         turnover at the electronics store by +14%.
ny expanded its duty free operations to include the
Haifa border crossing.                                   Besides the 1,000sq m electronics duty free store the
                                                         company also operates an 80sq m watch store, a 50sq m
The company continued to grow. In 1995 Sakal             watch counter, a 270sq m toy store and a 80sq m chil-
Sports entered the domestic market, growing into         dren’s fashion store in Ben Gurion’s duty free area. It also
a 20-strong chain of sporting products stores; 25
                                                         runs a luxury fashion and accessories store under the
stores carrying brand-name fashion and footwear
                                                         Emporium brand.
were also established. Sakal also entered the busi-
ness of wholesale and distribution to about 350
stores and chains in Israel.                             Sakal reveals that the toys and multimedia store posted
                                                         the highest increase, at +50%. “This is because we are
By 1997 Sakal Brothers had a chain of duty free          selling to tourists. And we are able to sell multimedia
retail stores in Ben Gurion Airport Terminal One,        products like Play Stations, which generate higher
including an electronics store. A chain of Sakal         turnover.”
Direct stores supports its electronics retail business
in the domestic market. It also distributes some of      At the watches store – which, as Gollard points out,
the brands it imports, such as Hyundai, JVC and LG.      stocks the most expensive watches in Israel – sales have
Sakal Brothers also controls Inflight Trade Services     risen by +10%.
Pte, based in Singapore, which supplies duty-free
products to airlines.                                    Sakal notes that the increases were hard earned, with
                                                         staff being given additional training. This is because the
In 2000 Sakal International and Sakal On-Line            airier, more spacious and modern new terminal has had
were established. The former grants franchises on        a negative effect on sales.
brand names represented exclusively by Sakal; the
latter is an e-commerce site.                            “The old airport was small and crowded; from check-in
In 2002, through acquisition of the company              to duty free it typically took half an hour. When we were
Layam, the company strengthened its hold on the          told that things would improve at the new terminal we
business of supplying duty free products to UN           were expecting this to be reduced to 15 minutes. But now
forces and the diplomatic community in Israel. Solly     it is taking about an hour, and that has had a bad effect on
Sakal tells The Moodie Report that Layam still           us,” he says.
operates as a company in its own right, and actual-
ly competes with Sakal for the diplomatic supply         The distance between Customs and duty free is a factor.
business. Layam also supplies duty-free consumer         But most importantly, security checks are now also con-
products to freight and passenger ships.                 ducted on Israelis’ baggage, unlike in the past, when only
In 2004 the company opened stores in the new             foreigners were thoroughly checked.
Ben Gurion Airport T3.
                                                         Coupled with the problem of more time being needed

48                                                                                               The Moodie Report
January 2006                                               BEN GURION AIRPORT • Sakal Duty Free

before arriving at the duty free area, Sakal notes that con-    The loss of this contract, he reveals, has inadvertently
sumers now also have more choice than before. “As a             resulted in sharp growth in turnover at Sakal’s chain of 70
result,” he says, “if you go to one store, there is not         domestic stores. Sales for January to September this year
enough time to go to another.” Smaller, less eye-catching       came to a cool US$102 million, while over the same
stores can lose out.                                            period last year turnover was just US$74 million. He
                                                                notes that because of the low duties on sports products
The design of the duty free area, or Rotunda, is another        the domestic stores are able to compete with duty free
problem. Seats are arranged around a fountain at the            outlets. “People are also used to buying from us. So when
centre. In turn the stores are arranged around the seat-        they realised that we are no longer in duty free, they came
ing area. But because of the size of the circle, passengers     to our domestic stores,” he says.
are unlikely to be able to get round to all shops on the cir-
cle before they have to board their flights.                    As the company is the wholesale agent and distributor for
                                                                popular brands such as Timberland, Keds, Polo Ralph
“From the point of view of design and beauty it has been        Lauren and Reebok, it can offer exclusive products at
improved, but from the commercial aspect it is not the          competitive prices.
best of layouts,” says Sakal, who prefers the format in air-
ports such as Singapore Changi where passengers walk            “It is difficult to do what we did with the sports store 15
along a corridor with shops on both sides through to the        years ago. The market has changed significantly,” he
boarding gates.                                                 acknowledges. And as the market changes, Sakal too is
                                                                moving ahead. He now wants to dig deep into the poten-
“We are succeeding in increasing our sales, but our expec-      tial of the electronics store. The aim is to increase spend
tations were different from what we are achieving at the        per passenger to US$17 on average, and that for Israelis
moment,” he says.                                               to US$45.

At the duty paid landside area, the company runs anoth-         For the group overall he wants to expand the company’s
er Emporium store, a kids’ fashion store, an electronics        international retail marketing business. From a base in
store and a watches store. It is noticeably quiet here com-     Singapore he plans to market some big brand names. “We
pared to the duty free store.                                   are in the process of talking to some international brands
                                                                about this,” he reveals.
Gollard explains that the shops in the landside so-called
Schakim Mall act more as showrooms for shops within             But just as it began, it remains a family business with
duty free, as the landside stores cannot compete with the       about 20 family members working in the company of over
duty free stores on prices. A selection of what is available    1,000 employees. “We treat all our employees as family
in duty free is also available here.                            members, too,” says Sakal. That family spirit seems sure
                                                                to take the company forward strongly into the future. ■
“Family or friends who
come and see people off can      Sakal’s clothing store for children (below)
pick what they want and          offers a wide selection of brands including Polo
get the traveller to buy in      Ralph Lauren and Timberland, while the toy
the duty free area,” he says.    store offers multimedia gaming products for
                                 children to try their hand at
Despite the high turnover
of its sports store in the old
terminal the company had
lost the concession at the
new terminal to James
Richardson, which part-
nered MGS International
to obtain the contract.
Asked if he is disappointed
about that loss, Sakal shakes
his head and whips out a
sales report in response.

The Moodie Report                                                                                                      51

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