Andy Wang returned to The Watch List with Nicole Petallides to discuss the reopening of the economy and Dufry Group, a Swiss-based travel retailer which operates duty-free and duty-paid shops, and convenience stores in airports, cruise lines, seaports, railway stations, and central tourist areas.

Key takeaways:

  • World’s largest travel-retail operator
  • DUFN-CH (locally traded in Switzerland), DFRYF (sponsored ADR), DUFRY (unsponsored ADR). All three trade in tandem.
  • 71.1% sales decline in 2020 due to pandemic
  • Partnership with Alibaba to accelerate growth in the Asia Pacific market

Air travel returned to 75% of pre-pandemic levels over Memorial Day weekend. Many investors have been buying airline and retail stocks betting on the reopening of the economy.

With Dufry Group, we have a company that posted a 70% sales decline in 2020. Today airports are significantly more crowded. As vaccines have been widely distributed here in the US, the pent-up demand to get on a plane to visit family and friends is enormous. On the heels of many people returning to offices this summer and in the Fall, business travel is also expected to pick up.

The reopening process, of course, will not perfect. Portugal, Spain, and Germany issued new travel restrictions in response to the Delta coronavirus variant which is why Dufry's stock is down today. Nonetheless, this is a very interesting name for investors.

Duty-free retail in airports accounts for about 90% of Dufry's total sales. This is a retailer like no other. It has captive customers — travelers who are in airports waiting for their flights. Dufry has no competition from Amazon.

Dufry has just 10% market share in a very fragmented market. Many Mom and pops are exiting after this difficult pandemic period.

The travel-retail industry is also moving more luxury. Dufry is well-positioned to come into an airport and bring in a luxury boutique experience. Pure luxury goods, including fragrances, account for about 15% of the portfolio today and could double in the coming years.

A second interesting part of the DUFRY story, and it's not fully understood because we do not have a lot of detail yet. Dufry has a joint venture with Alibaba to accelerate growth in the Asia Pacific market. Notably, 40% of luxury goods spending comes from China. In January, Dufry unveiled a cooperative agreement with Hainan Development Holdings, marking its first involvement in mainland China. From this partnership, the first shop to be opened, on Jan. 31, was the Global Duty Free Plaza in Hainan. Hainan island is a Chinese tourist destination where people may travel to shop with handsome tax breaks granted by the government.

This is one worth watching because the earnings power coming out of the pandemic could be very strong.

Have you resumed air travel? When you fly, do you buy duty-free goods?