The Billionaire Who Wasn't (10 page)

Feeney and Miller were almost back where they started. They went out for a tuna fish sandwich at a New York deli. Miller recalled telling Feeney, “Well, Chuck, it's just you and I now. Looks like the shit's hit the fan. We've got to get out of this thing. It's back to you and I to figure out how to do it.” There was still a chance of getting out of the mess, said Feeney. They couldn't close down the car operation right away because it was generating the cash flow, but they could perhaps boost the cash flow from the duty-free shops in Hong Kong and Hawaii to clear off the debts.

Feeney had moments of despair. “Of course. It goes with the territory. But there wasn't much we could do. It was something we had started, and we thought we were going to make a million dollars out of it. We had no choice but to salvage the company or go over the cliff.” Harvey Dale was struck by their determination to straighten things out. “Both Bob and
Chuck felt the honorable thing to do would be to try to pick up the cash flow and redeem themselves and get out of trouble,” he recalled.

Danielle Feeney saw a change in her husband during the crisis. To her, Chuck had always seemed driven by the desire to succeed. She admired him tremendously—how he had gone to Cornell, learned French, and finally become a success and a citizen of the world. When they got married he never talked about money, only making a go of his business ventures. A fortune was not his real goal, she perceived; his work was his challenge. Now she saw how his hopes had been shattered and his ego wounded. At home he could still be fun, charming and kind, but at times he was unsettled and angry, working tirelessly with people coming and going at the house to cope with the crisis. The family was growing—a third daughter, Leslie, was born in Paris in June 1964—and with that came more financial responsibilities. But Danielle never doubted that Chuck would find a way out of the situation.

To reduce costs, Feeney and Miller moved the Tourists International offices from Lexington Avenue to a less-expensive building in Fort Lee, New Jersey, just across the George Washington Bridge from Manhattan. There, Parker began squeezing everybody for nickels. Harvey Dale came by and saw a discarded briefcase on the floor. “It was old, made of cardboard. It was empty. I needed an attaché case as I wasn't making much money. I asked Alan whether I could take it, and he looked at me and said, ‘Sure. That will be $5.' And I paid for it.” The entertainment budget was slashed to zero. If there was a business lunch, the other party paid. The new regime impacted seriously on Bob Miller's personal cash flow. At a lunch with bankers where everyone had agreed to pay their share, Miller collected cash from each person around the table and paid with a credit card. Parker imposed financial control by the simple method of keeping the company checkbook locked in a drawer. Bob Miller would plead, “Alan, we've got to pay this bill,” and the unsmiling accountant would say: “Tell them we will release the check in ten days.”

The next to leave was Lee Sterling. In early 1965, Feeney had asked him to go to Hawaii to manage the duty-free store and try to boost sales. At the time, they were paying Peter Fithian to supervise it. But Sterling was newly married, and his wife didn't like life in Honolulu. Like Mahlstedt, he found Miller difficult. The last straw, he recalled, was a letter Miller sent that demanded “in an imperious tone” that he transfer $65,000 to him from
Hawaii for Cars International. “Bob and I were never going to get along,” he reckoned. Sterling's father died, and he wanted to take time out to sell his father's business in New York. He told Feeney he would have to find someone else, and left, later in life becoming a successful real estate lawyer in Colorado.

The inability of Bob Miller to get along with Lee Sterling and Jeff Mahlstedt, both friends of Chuck Feeney, cast a shadow over Feeney's relationship with his original partner. Although they had good times when starting up and shared the same goals as Young Turks together, Feeney never developed a close friendship with Miller, and a coolness set in that did not bode well for their relationship in the years ahead. But the immediate need was to manage the rescue mission. To accomplish this, they divided the world between them. Feeney would go to Honolulu and try to improve the duty-free business. Miller would work out of New York to cut expenses around the world as fast as he could.

As the dust settled, the shareholding was redistributed. The departure of Mahlstedt and Sterling left 22.5 percent of the equity available. They agreed to give Alan Parker 20 percent. Parker would have liked one-third of the shareholding, but when Bob mentioned this, Chuck retorted, “No way! Give him some of your share if you like.” Again nothing was put in writing. This left 2.5 percent. They offered it to Tony Pilaro to do pro bono work for them, even if he was making his career elsewhere. Chuck Feeney didn't like to lose such a bright legal brain. They had fought the Johnson administration together in Washington, and Feeney knew how sharp and dedicated Pilaro could be. The lawyer was feeling guilty and upset about quitting, and he accepted.

Jean Gentzbourger was another victim of the cash crisis. Before going to Hawaii, Feeney instructed him to liquidate the French company they had set up to run the Paris shop. When back in France, Feeney went himself to see what could be salvaged and told Parker in a memo that he had found an electric adding machine and a Grundig tape recorder that could be put to good use elsewhere. More than ever, Feeney was aware of the need to avoid waste of any kind.

On the advice of Harvey Dale, Feeney and Miller transferred their ownership of the company to their foreign-born wives so that it was no longer subject to U.S. tax laws. The major shareholders became Danielle Juliette Feeney, listed in company filings as a “directress,” of Neuilly-sur-Seine in
France, and Maria Chantal Miller, described simply as a “married woman,” of Guayaguil, Ecuador.

With the collapse of the car and five-pack business, Feeney and Miller dropped the names Tourists International and Cars International. Now that they were reduced, more or less, to retail ventures at Hong Kong and Honolulu airports, they adopted the name that Feeney had bought from the defunct New York company. In the future they would be known as Duty Free Shoppers, or DFS.

CHAPTER 7

The Sandwich Islands

The duty-free shop at Honolulu International Airport, when Chuck Feeney arrived to run it in late 1965, was little more than a market stall. Situated in the Overseas Waiting Lobby, its floor area was just over 100 square feet. It had three four-foot counters held together with Scotch tape.

The concept of a store selling duty-free merchandise in an airport was relatively new at the time, though the first known duty-free agreement in the world dated as far back as 700 AD, when King Ethelred of Mercia granted the bishop of London exemption from customary duties on imports. The idea was adopted by European armies, which supplied duty-free liquor and tobacco to soldiers, and embassies traditionally enjoyed duty-free supplies in their host countries.
²
Most countries eventually established duty-free zones at seaports where imported goods were stored in bonded warehouses and used only to supply ships. They were not taxed because they never entered the domestic economy.

The first duty-free stores anywhere were gift shops on pre-World War II ocean liners, and passengers patronizing the bars could enjoy drinks at duty-free prices. After the war, the privilege was extended to international aircraft passengers, but airports in the 1940s and 1950s were slow to respond, as air terminals tended to be primitive structures with little space for
commercial activity. The first airport duty-free shop was established in 1947 at Shannon airport in the west of Ireland, where transatlantic airliners stopped to refuel. The brainchild of the airport's catering boss, Brendan O'Regan, it started as a six-foot wooden counter backed by shelves of Irish whiskey and cartons of Carroll's Irish-made cigarettes and staffed by three men in double-breasted suits. The concept was so novel that suspicious Irish customs officials accompanied every carton of liquor from the bonded store to the shop, and stocktaking by hand was required three times a day. Bottles could not be opened at the airport: if a bottle was dropped, it was counted as opened and a customs officer was called to inspect the broken glass and levy an excise charge on the spot. In the 1950s, the shop expanded and began selling perfumes, watches, and cashmere to mostly American transit passengers. These were supplied directly by the manufacturers in London and Paris, an important precedent that Shannon established for other airport duty-free shops to follow.

Feeney found that Hawaii was in the early stages of a tourism boom. American tourists were starting to arrive in significant numbers, following the granting of U.S. statehood to Hawaii in 1959 and the introduction on the Pacific routes of Boeing 707s, which could ferry passengers from California in only three hours.

With balmy weather, swaying palm trees, and azure ocean waters, the Hawaiian Islands were close to the American idea of paradise. Hawaii had been popularized for Americans by the 1958 Oscar-winning movie
South Pacific,
and a nightlife culture had developed in Waikiki, Honolulu's beach resort, where mainlanders came to hear the crooner Don Ho and other popular Hawaiian entertainers. It was here in 1959 that Feeney's Cornell buddy, Chuck Rolles, had opened the first American restaurant with a salad bar, the forerunner of a chain of fifty Chuck's Steak House restaurants across the United States. New hotel developments in the mid-1960s were transforming Waikiki into an oceanside Manhattan. The sedate old Waikiki Beach hotels, the Royal Hawaiian and the Moana, once sufficient to cater to the rich tourists and Hollywood stars who patronized Hawaii, were being overshadowed by package-holiday hotels. There was so much construction going on, people said that Hawaii's national bird was the crane.

Most of the tourists milling around the DFS store in the Overseas Waiting Lobby were Americans traveling to and from the mainland, and they were not therefore permitted to buy duty-free goods as they were going
from one U.S. state to another. Under international law, only travelers going to foreign destinations could buy duty-free goods. Feeney often had to turn away Americans from the store who thought Hawaii was a foreign country.

The store got busy, however, between noon and 2:00 PM, when a small number of flights landed to refuel en route to Asia. An increasing number of the passengers who wandered over to inspect the shop's display were Japanese. They were still a rare sight abroad in the mid-1960s. In order to revive its war-shattered economy, the Tokyo government for many years banned ordinary Japanese citizens from traveling outside Japan for pleasure. It issued passports to business travelers for one journey only and imposed a severe limit on the amount of foreign exchange that could be taken out of the country. All that began to change when the ban on leisure travel was eased to coincide with the 1964 Tokyo Olympics. By then, Japan was well on the way to transforming itself into an economic powerhouse. Chuck Feeney, who had served in Japan and had attended the Tokyo Olympic Games, sensed that the country of 100 million people was ready to burst out of its postwar isolation. In 1964, some 20,000 Japanese were allowed to go abroad on pleasure trips. This was no more than fifty-five people a day, but most headed for Honolulu. The resentment over Pearl Harbor had faded with time. Hawaii was attractive to Japanese tourists not just because of the subtropical climate and sandy beaches, but because it was easily reached, many local people had Japanese ancestry, and it was America
,
the world center of consumerism.

The main goal of the first Japanese tourists was to spend their pent-up savings on foreign luxury items that were not available or were prohibitively expensive at home. They wanted quality liquors, perfumes, watches, pens, jewelry, and leather goods. “The ones who came out in the very beginning were these hicks, these
noukas,”
said Feeney. “They would walk into the store, open their belt, drop their pants, reach into their crotch and pull out a pile of yen. This was cash they had in the house.”

From his military service in Japan, Feeney was aware of the complex Japanese gift-giving culture, which employed thirty-five words to describe the act of giving.
Senbetsu
was the custom of giving money to departing travelers, and
omiyage
the reciprocal buying of presents for bosses, colleagues, family, and friends. Whenever a Japanese citizen went abroad, bosses, clients, and a range of friends would provide cash for the journey, creating an obligation for the traveler to bring back a present. Also at
oseibo,
year's
end, and
ochugen
, midsummer, employees received envelopes stuffed with money. Standing behind the counter in Honolulu airport, Feeney learned more about how it worked. He would see a Japanese business type buying fifteen lipsticks for his staff, a leather purse for a junior worker, a watch for a big boss, and a bottle of whisky for a supervisor or family friend.

As more and more Japanese crowded around the counter of the little store, Feeney signed up for early morning classes five days a week with a Japanese teacher, Tachi Kawa, to brush up on the Japanese he had studied in military service. He memorized phrases and was soon able to handle customers in their own language. He insisted that anyone working behind the counter speak Japanese to the customers. Some of the salesgirls were natives of Japan who had married American ex-servicemen. They marshaled themselves behind the tiny counter when the Japanese planes were due. “I used to stand in the middle of the girls and line them up like last night's game when they were ready to take a free kick,” said Feeney. They were squeezed so tight he would joke, “Don't put on any weight.”

Feeney organized a system of red-dot specials so the sales assistants got commissions for pushing merchandise with the best markup. “If you have a sloppy display you have a sloppy customer,” he told the staff. “And selling to customers is like catching flies. If you snap, then the fly is dead.” He trained the girls “but some of them trained us,” said Feeney. “We had one girl who, after selling six $50 pens, would say, ‘Is that all the friends you've got? If I were you I would buy six more, and better, pens at $65 each.'” One hard-as-nails Japanese assistant was so good at selling that the Japanese customers often went out not knowing what they had bought. A customer came back once to complain that the cigars he had bought were difficult to smoke because they had holes in them: Rather than admit they had been eaten by worms, she convinced him that the perforations signified high quality.