Since the Lehman Brothers collapse, the world’s largest luxury travel retailer, DFS Group, has decided to expand its financial institution portfolio to include what it considers creditworthy Asian and Chinese banks. The Hong Kong-based company has also altered its foreign exchange strategy to deal with amplified market volatility.
The recent increase in exposure to counterparty risk has made corporates weary about the type of banks they choose. This is especially true for DFS Group, who during pre-Lehman times relied only on one.
“Because of the counterparty risk post-2008 crisis which affected US banks and now European banks, we have now become more diversified,” said Kenneth Ng, director and corporate treasurer of DFS Group in an exclusive interview with Asiamoney PLUS on December 5.
In the past, one global bank handled 90-95% of the company’s banking requirements. However, the company, whose major shareholder is France-based LVMH, added two additional bankers since 2009.
“This is in response to the changing business environment,” declared Ng. “In the past, we wouldn’t have thought that a western bank can go bankrupt, but now it’s unpredictable…anything can happen.”
DFS, whose company strategy is fairly conservative, uses a Singapore-based shared service centre (SSC) to manage its accounting and information technology (IT) operations. This centralised entity is responsible for the execution and the handling of specific operational tasks.
In the case of DFS, the SSC helps pool the company’s foreign currencies from their outlets located around the globe.
The company, who used to auto-convert its foreign currencies into US dollars, has recently set up a multi-currency account at its centralised entity, which enables them to actively monitor exchange rates.
This has also helped them save on transactions costs as it has payments and receipts in similar currencies, therefore reducing the need to convert to or from a particular currency.
“It is not attractive to auto-convert due to a weakened US dollar,” said Ng. “We are now more active in managing our foreign exchange position to minimise foreign exchange rate impact.”
DFS, whose business is booming due to an influx of mainland tourists arriving into Hong Kong and Macau, plans to expand into Middle East and Europe.
“We are looking to expand to Europe because nowadays a lot of Chinese tourists travel there,” said Ng. “Our company’s strategy is: we follow our customers.”
The cash-rich company noted that its worldwide business has been growing rapidly with an estimated 60% growth rate in Macau, 40% in Hong Kong and 20% in the US, and is expected to continue for the foreseeable future due to strong demand from its Chinese customers.
On the other hand, DFS’ luxury retail business, which is dependent on business travellers, in Japan, Australia and New Zealand has been impacted by natural disasters and strong local currencies.
“Overall it has been a record-breaking year,” exclaimed Ng. “But our performance [in Japan, Australia and New Zealand has] suffered a little bit because of the strong exchange rates, flooding in Australia and earthquake in New Zealand.”
Ng, who is not too concerned about the poor business performance in these countries, believes that the strength of spending power of tourists from these nations will be reflected in other countries like the US.
“Our shop in the US has benefitted from the strong yen rate and therefore, has attracted Japanese travellers to our outlets over there,” said Ng.
Famous for its airport stores, DFS runs over 40 stores in 14 countries and offers a range of luxury brands of cosmetics and perfume, jewellery, liquor, tobacco, apparel and other high-end goods.
In Hong Kong, DFS is planning to open its new outlet in Causeway Bay by summer 2012.