NEWS

By Alan Huxtable, Vice President, Business Development & Commercial Director

Ft Lauderdale, June 10th 2014 -Brothers, Ross and Shahram Khaledi have successful history in the electronics business based in Texas. They not only distributed major brands such as Sony, JVC, Sharp, Panasonic, AIWA and Toshiba, but also developed and began manufacturing their own line, called Gotech. Consequently, it’s no surprise that when they decided to enter the duty free market, the Khaledi’s chose to specialize in electronics. Laredo, one of the largest land border crossings in the US, processes 15 million people crossing each year. The Khaledi’s recognized the enormous opportunity to serve potential customers entering Mexico. In April 2009, HKG Duty Free opened El Portal, their flagship duty free/duty paid store located in Laredo, Texas. Since opening this flagship store, the Khaledi’s have expanded operations considerably.  HKG Duty Free  now have 11 locations operating along the US-Mexico border: three in California (two in San Diego County and one in Calexico); one in Arizona at the Nogales crossing; and seven in Texas, three in Laredo, and one each in Hidalgo, Brownsville, Roma and El Paso). Not surprisingly, HKG Duty Free is a market leader in electronics, but has also been developing its business in fashion watch and accessories. El Portal already retains personalized corners with Lacoste, Guess, and Swarovski.  This year, additional personalized corners are scheduled for introduction including Mont Blanc, Tous, Michael Kors, and AX Armani Exchange in the El Portal fashion department. Furthermore, plans are underway to personalize areas for key beauty brands as well.

For years the Khaledi’s have also been involved in other successful business ventures including commercial development in Laredo, Texas.  Endeavors include building and leasing large capacity warehouse distribution facilities, even developing residential community and other land developments in the Laredo market. In 2012, HK Global Trading Ltd purchased a high-end retail electronics business operating in Montana. This company retains existing business-to-business division, selling brands including SubZero, Wolf, Kitchenaid, Apple, Samsung and LG among others.  With knowledge in the electronics industry, this was logical acquisition.   With the growing  business portfolio, it eventually made sense for the Khaledi’s to move their headquarters from Laredo, Texas to Fort Lauderdale, Florida.

 

Moving into airports

The company began to look at other areas of expansion. Because of his years of management experience in travel retail affiliated with Dufry, the Khaledi’s brought on Alan Huxtable to help with these plans. Huxtable has extensive history involving airports and destination retail encompassing US, Caribbean, Mexico, and LATAM territories, and he began searching for potential opportunities.

Having stores along the US-Mexico border have given the Khaledi’s special insight into the Mexican consumer market. Together, Huxtable and the Khaledi’s developed and executed a business plan and began looking for suitable locations in Mexico. Huxtable’s research eventually led him to Querétaro airport, located just north of Mexico City.

 

Queretaro is the fastest-growing city in Mexico, with the highest per-capita income. The city is also home to a number of  high profile international companies, including Bombardier, Samsung, Kellogg’s and others. The airport has been developing a major hub for freight carriers and there is a growing air travel business market.  United Airlines has daily connections from Querétaro with Houston, Dallas, Chicago, Denver and Los Angeles including Volaris who operates charter flights. Huxtable says, “Opening in Querétaro was a logical first step into airports in Mexico”.

HKG identified long term growth opportunity in Querétaro, which until now has not included duty free operations, and therefore initiated negotiations with the airport. Eventually, the company came to an agreement with the airport. The opening of a 300-square-meter duty free store located in the main international and domestic departures area is scheduled for completion by July, 2014.

The Querétaro Airport HKG Duty Free store will serve both international and domestic passengers. Unlike other existing HKG's stores, this location will not specialize in featuring the electronics category, but the offering will be similar: spirit, tobacco, fragrances, watches, fashion accessories, and confectionery, with spirits, tobacco, and fragrances assortments taking up the most of the merchandising presentation. The Airport and HKG Duty Free have signed an exclusive contract for three years, with the option for two more two-year renewals, for a total of seven years.

Continuing expansion in Querétaro and elsewhere

HKG Duty Free is already looking to expand, both within Querétaro Airport and in other Mexican airports that it has identified as showing similar growth potential. In Querétaro, HKG Duty Free hopes to open a satellite showroom in the Fixed-Base Operation (FBO) Terminal. Huxtable and the Khaledi’s envision opportunity to service executives and frequent business travelers utilizing private planes in this adjacent terminal to the main airport.

 

For future opportunities, HKG Duty Free is seeking out airports with substantial business traffic, in areas with higher revenue capacity and growing population centers.  HKG Duty Free firmly believes this combination offers the best possibility for long-term success. To this end, Huxtable is researching emerging airports throughout Mexico to find those that match this set of criteria.

While HKG Duty Free clearly understands and is certainly focusing on developing the Mexico portfolio, it is also currently considering the US Airport market encompassing both duty free and duty paid concession opportunities.

 

Another border crossing

After years of operating exclusively at the US-Mexico border, HKG Duty Free recently expanded into the southern region located at the three-way border crossing between Belize, Mexico and Guatemala. This business, which goes by the name of HKG Duty Free Belize Ltd., is similar to the stores the company already operates along the US Southern Border. The two acquisition stores will subsequently be remodeled to HKG standards this year.

Moving in every direction

Many years of developing their business acumen, especially in the duty free industry, have combined to make the Khaledi brothers and Alan Huxtable a formidable and winning combination. They have taken duty free and duty paid from the north of Mexico down to its southern borders, and is now expanding from the heart of the country near Mexico City to any number of emerging areas throughout the region. The company has grown from its roots in electronics to a full-range duty free operation offering major brands from every category. The growth of HKG has been rapid since 2009, and it shows no signs of slowing down anytime soon.

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Marc Anthony Cancelled Due to Scheduling Conflicts LAREDO, Texas –The Marc Anthony show scheduled for Monday, September 1st at 8 p.m. at the Laredo Energy Arena has been cancelled. “Unfortunately this show had to be cancelled due to scheduling conflicts,” said Xavier Villalon, general manager for the SMG-managed Laredo Energy Arena. Tickets purchased via a Ticketmaster outlet may be refunded in full at the original place of purchase. Patrons who purchased tickets at the Laredo Energy Arena box office may come by Monday through Friday from 10 a.m. to 6 p.m. and Saturdays from 12 p.m. to 4 p.m. to receive a full refund. Questions about refunds may be answered by calling the Laredo Energy Arena at (956) 791-9192.

As mentioned, HKG is currently working on several boutique concepts. The operator already has an established relationship with Lacoste that has resulted in two boutiques in Laredo and (location). The original cooperation saw HKG selling fashion and accessories in the boutiques, but the existing boutiques will be renovated to include watches as well.

 

In fact, the watch category was the impetus for other upcoming boutiques with Fossil and Guess. “We do significant business with Fossil and watch brands like Michael Kors, Diesel and DKNY. This business has grown significantly over the last 18 months,” Huxtable explains. “As a result it made sense to expand into selling Fossil’s accessories and create a boutique to showcase the categories.”

 

The situation with Guess is similar in that that brand’s watches were selling well at HKG’s stores. As a result, Guess accessories will be brought in as well. “Everyone has done well with Guess accessories so it made sense to expand into a boutique,” Huxtable says.

 

The planned locations for the Fossil and Guess boutiques are HKG’s stores in Laredo and (inaudible), Texas. A further rollout to one of the company’s California locations is possible, but nothing has been set in stone.

 

HKG is also looking into introducing the boutique concept with beauty brands in its key store locations. The operator has done its due diligence by studying the market and sees potential. Huxtable mentioned popular brands such as Body Shop and philosophy, but as of publication no deals had been closed.

 

“There are some other fragrance brands that we’ve been working on for some time now to try to get launched, and there may be a big one coming up soon,” Huxtable hinted.

Huxtable tells us that sales over the first seven months of 2012 were good, particularly in the fashion and (unintelligable) cateogories. While electronics has been difficult this year, largely because of issues relating to accessibility of stock due to flooding in Thailand, HKG remains the premier duty free retailer of electronics on the border with Mexico and Huxtable sees great potential in the category.

 

The tobacco category is also up and after a period of negotiation HKG is now dealing directly with Philip Morris, which is helping business. The operator also now has four private label cigarette brands, with plans to possibly double that number in the near future. In fact, HKG sees private label brands across categories as an important part of the business.

 

“It all adds to the overall results of the category,” Huxtable explains. “When you own your brand, you have more flexibility with that you can do with it. The end result is there is a real market for it. One of our competitors has had their own private label for some time, so we decided to get into that side of the business. We already have two private label electronics brands and eventually we're even going to develop other private labels in other categories.”

 

Laredo-based HK Global Duty Free (HKG) currenty operates 11 (correct?) duty free stores along the border with Mexico. The company knows its consumers, largely Mexicans traveling back and forth across the border, and has carved out a very respectable business  in Texas, Arizona and California by being one of the ony consistently branded duty free retailers on the US/Mexico border.

 

Alan Huxtable, Vice President of Business Development & Operations at HKG, tells Americas Duty Free that in addition to the forthcoming openings of some fashion and accessories boutiques at HKG stores along the border, the operator has significantly expanded its buying team and placed a focus on developing private label brands across cateogories. By far the biggest news for HKG this year, though, is the planned opening of two airport duty free stores in Queretaro, Mexico. Huxtable hopes the move will eventually lead to more airport store openings in the lucrative Central and South American markets, not to mention in US airports.

 

Fashion and accessories outperform

 

As mentioned, HKG is currently working on several boutique concepts. The operator already has an established relationship with Lacoste that has resulted in two boutiques in Laredo and (location). The original cooperation saw HKG selling fashion and accessories in the boutiques, but the existing boutiques will be renovated to include watches as well.

 

In fact, the watch category was the impetus for other upcoming boutiques with Fossil and Guess. “We do significant business with Fossil and watch brands like Michael Kors, Diesel and DKNY. This business has grown significantly over the last 18 months,” Huxtable explains. “As a result it made sense to expand into selling Fossil’s accessories and create a boutique to showcase the categories.”

 

The situation with Guess is similar in that that brand’s watches were selling well at HKG’s stores. As a result, Guess accessories will be brought in as well. “Everyone has done well with Guess accessories so it made sense to expand into a boutique,” Huxtable says.

 

The planned locations for the Fossil and Guess boutiques are HKG’s stores in Laredo and (inaudible), Texas. A further rollout to one of the company’s California locations is possible, but nothing has been set in stone.

 

HKG is also looking into introducing the boutique concept with beauty brands in its key store locations. The operator has done its due diligence by studying the market and sees potential. Huxtable mentioned popular brands such as Body Shop and philosophy, but as of publication no deals had been closed.

 

“There are some other fragrance brands that we’ve been working on for some time now to try to get launched, and there may be a big one coming up soon,” Huxtable hinted.

 

Tobacco stays strong

 

Huxtable tells us that sales over the first seven months of 2012 were good, particularly in the fashion and (unintelligable) cateogories. While electronics has been difficult this year, largely because of issues relating to accessibility of stock due to flooding in Thailand, HKG remains the premier duty free retailer of electronics on the border with Mexico and Huxtable sees great potential in the category.

 

The tobacco category is also up and after a period of negotiation HKG is now dealing directly with Philip Morris, which is helping business. The operator also now has four private label cigarette brands, with plans to possibly double that number in the near future. In fact, HKG sees private label brands across categories as an important part of the business.

 

“It all adds to the overall results of the category,” Huxtable explains. “When you own your brand, you have more flexibility with that you can do with it. The end result is there is a real market for it. One of our competitors has had their own private label for some time, so we decided to get into that side of the business. We already have two private label electronics brands and eventually we're even going to develop other private labels in other categories.”

 

Moving south

 

HKG’s new stores in Otay Mesa (280 square meters) and San Ysidro (260 square meters) are completely finished, Huxtable tells us. At press time the operator was waiting for US Customs and Border Protection to approve the permits, but Huxtable expected the stores would be up and running by September. The new locations mean that HKG now has three stores in California in addition to its locations in Arizona and Texas.

 

“We’re expanding our portfolio—trying to diversify our portfolio,” Huxtable says “The reason we’re opening two stores in California is that we originally had one store in Calexico and the business on the west coast has grown quite dramatically, so it was important to expand with the two additional stores. We’re not in every major crossing area right now, but we’ll have three really strong stores in California and San Diego County.”

The big news for HKG, however, is that the operator has inked a deal to open its first airport operations in the city of Queretaro, Mexico about an hour northwest of the Distrito Federal. A new airport is being developed there and HKG has been awarded the concessions for two departures stores initially, with one more store—arrivals this time—coming online sometime in the future.

 

Of course, in true HKG fashion the operator has done its homework and Huxtable tells us this step into airport retailing is anything but a lark. He’s been negotiating with airport officials in Queretaro since November 2011, traveling to Mexico at least once a month since then, and is also deep in talks with two other secondary airports in Mexico.

 

Of course, the word “secondary” should be qualified. Mexico City can only be described as massive, and in much the same way as Brazilians in large city centers have begun opting to fly from secondary airports near Sao Paolo or Rio de Janiero, so too are Mexicans choosing airports like the one in Queretaro. In Asia as well, the term “secondary airport” is deceiving as many serve cities larger than most major European urban areas. As airport infrastructure comes under increasing scrutiny in Latin America and frequent travelers continue to look for alternatives to congested hubs, it’s easy to see why Huxtable sees a world of possibilities in these tenders, many of which tend to fly under the radar of bigger worldwide operators.

 

Indeed, the Mexican consumer has been HKG’s bread and butter since its very first border store and it’s nigh on impossible to think of a duty free retailer who knows this consumer group better. Despite the fact that more airport retail experience than HKG possesses is generally required to secure airport tenders in the rest of North America, the Queretaro deal appears to be a match made in heaven—an emerging airport ready and willing to take advantage of overspill from an infrastructurally taxed metropolitan area with a population of 20.5 million and an operator eager to prove itself and eventually make the move to bigger airport operations.

 

“Our focus is to go after the second tier, emerging airports and use that as a platform to move into other markets, including back into the US airport market,” explains Huxtable.

Travel retailer HK Global Duty Free has signed an exclusive concession contract for its first operations in Mexico and in an airport, with its first store opening in Queretaro International Airport in June. See pages 1 & 2 of Travel Markets Insider Newsletter Vol. 16 No.8 for further details.

US Southern Border operator, HKG Duty Free continues expansion opening locations which includes a fourth Laredo based store entry last year, and coming soon, two California stores, the first in Otay Mesa opening in March, and San Ysidro expected online by June further maximizing HKG commercial coverage positioned in all major crossings.

 

Marco Arilli (see page 54) former HKG Vice President, Merchandising, played a critical role in steering  to date growth including store upgrades, category, and brand development the past three years.   Of particular note, introduction of Fossil and Swatch Group brands and Lacoste shop-n-shop boutiques opened in Laredo El Portal, Hidalgo, and other HKG locations.  Of note, fashion watch and accessories categories grew substantially in 2011 for HKG.   This trend is expected to continue in 2012.  Furthermore, Arilli established a strong base in the fragrance portfolio supporting existing and forthcoming ventures anticipated.

 

As previously announced, Alan Huxtable, former Dufry Executive in the Americas, joined HKG in 2011 bringing extensive experience involving merchandising and business development encompassing airport, cruise terminal, and resort destination duty free and retail applications in US, Mexico, and the Caribbean markets as Vice President, Operations and Business Development.  Huxtable’s primary focus is expanding the HKG commercial portfolio into new markets throughout the region utilizing established HKG footprint and overall experience derived applied to new venues.   Huxtable expects forthcoming announcements in the near future.   With Arilli’s recent departure, Huxtable as well assumes overall responsibility for merchandising development, procurement, and overall portfolio enhancements going forward.  Huxtable is currently establishing infrastructure and building team expertise supporting expansion.