The Billionaire Who Wasn't (12 page)

As Japanese business travelers often had to give presents to the same bosses, Camus poured lots of old brandy into different bottles to widen the choice, such as Baccarat crystal decanters, Limoges porcelain books, and busts of Napoléon in various colors, which made excellent gifts for Japanese business clients. One of their most successful was Camus Josephine Pour Femme, a lighter cognac in a slim bottle with a label showing a willowy lady in the style of Art Nouveau artist Alphonse Mucha. It was a big hit with the Japanese “office ladies.”

DFS also got involved in the “creation” of an armagnac—a brandy made in the Armagnac region of the Pyrenees, which, unlike cognac, is distilled only once—and made it into a recognized global brand. At Gentzbourger's suggestion, Michel Camus bought an old unused label called Chabot that originated with the Chabot family in the village of Labastide d'Armagnac near the Spanish border, and established a production unit. Gentzbourger designed the first bottle of Napoléon Chabot, and called it Prince de
Chabot—a name they dropped after a person claiming the title called one day and asked for a percentage of the sales for use of his name.

Michel Camus was not the only French product maker to put his trust in DFS. Gilles Fuchs, son-in-law of Robert Ricci, who with his mother, Nina Ricci, founded the famous French perfume house, called to see Alan Parker when DFS was still struggling. “This guy wanted to sell me a thousand bottles of quarter-ounce Nina Ricci for $3 a bottle,” recalled Parker. “I said to him, ‘Tell you what we'll do. We'll buy 3,000 bottles at $1 each.' And he went for it. We kept on buying it at a very low price, and it created a very good margin for us so we pushed the hell out of it, and it created an enormous market for them over the years in Japan. He was smart enough to realize that if he got us hooked on his perfume, those millions of bottles would flow in, and he doesn't have to spend money on marketing in Japan, which he couldn't do anyway as he couldn't get into Japan. We could buy Nina Ricci at maybe a third of the price and make twice as much money.”

The salesgirls got a special commission for pushing Nina Ricci on the unsuspecting Japanese shoppers. “They were very smooth and adept at this also,” said Matousek. “They would try it on the person's hand and say, ‘This is a new perfume; this is the top fashion now.'” As the company got bigger, Japanese tourists were confronted with displays of Camus and Nina Ricci at the entrance, and over time came to accept them as the gold standard of Western luxury goods.

Within two years of the Camus deal and setting up Airport Chandlers, the DFS car debts were paid off, and Airport Chandlers was making money. The four shareholders were able to meet their obligations to the admirals and generals who had ordered cars, and to deliver everything on time, even ahead of time. Airport Chandlers paid out dividends even before DFS. It was the “cash cow” at the time, recalled Parker. The first dividend was $31,250, divided proportionately among the four owners, in 1967. Chuck Feeney and Bob Miller each received $12,110; Alan Parker, $6,250; and Tony Pilaro, $780.

The DFS owners had long memories. It would take years for better-known cognacs, whose makers had snubbed them in tough times, to find a place on the shelves of their stores. By the mid-1980s, Camus was retailing almost half a million cases of cognac, mostly through DFS, and had become the number one cognac in Japan and the number five cognac in the world. Chabot went from zero to the number one exported armagnac in France.

At its peak in the 1980s, the arrangement would provide the four shareholders with total cash dividends averaging $50 million a year. And no one ever knew about it outside the company. It was a retail coup on a global scale. “We had the worldwide rights, we set the price, and we sold to ourselves,” said Feeney.

Chuck Feeney never forgot Michel Camus's act of trust in him. “It was the start of a wonderful relationship and one of the great strokes of fortune we had,” he said. Michel Camus became something of a father figure and mentor to Feeney. The Feeney and Miller families became regular visitors to the Camus chateau just outside the village of Cognac in the west of France. Michel Camus loved to tell his visitors: “Making a great cognac is easy. All you need is a great-grandfather, a grandfather, and a father who have dedicated their lives to it.”

CHAPTER 8

Hong Kong Crocodiles

While Feeney was raking it in at Honolulu airport and Miller was closing down Cars International, they entrusted the management of the Hong Kong duty-free shop at the new Kai Tak terminal building to John Monteiro, a savvy local accountant of Portuguese descent. Monteiro had been a manager with the China Light Company and was about to emigrate to a job in the United States when the two founders persuaded him to join DFS. They needed somebody with his street smarts. They promised they would transfer him to the United States sometime in the future. They wrote it into his contract.

The British colony in the late 1960s with its population of 4 million was the world capital of laissez faire capitalism. Everything and anything could be bought and sold. The harbor had no seagulls, it was said, as nothing edible was ever thrown away. Authority was invested in the British governor, but real power resided in the boardrooms of the Hong Kong and Shanghai Bank and in the big “hongs,” or trading companies, like Jardine Matheson, Butterfield & Swire, and South Sea Textiles.

Hong Kong was just three hours' flight time from Tokyo. It had Western stores, double-deck buses, and English street signs. To Japanese tourists looking for a foreign experience and bargain prices, it was the number one destination in all of Asia. It was almost like going to England. And everything was duty free, except liquor and tobacco. The only people who could sell liquor and tobacco without charging duty were DFS.

As in Hawaii, the airport duty-free shop was like a huckster operation, with just two fifteen-foot counters. It had been badly run in its first few years when the owners were not paying attention. A manager once gave the staff Christmas Day off and went to play golf, forgetting that dozens of Japanese tourists were due to pick up duty-free liquor that day, and a mob of angry Japanese had gathered at the shuttered store.

Just as in Hawaii, the airport shop found itself overwhelmed by Japanese tourists after 1964. The salesgirls couldn't take orders fast enough for duty-free booze and cigarettes. Monteiro employed a team of Japanese-speaking people to ride on the tour buses and take orders for collection at the airport. As Japan eased restrictions further on foreign travel, the business began to double every month. It came to a point where “it was wild, we just couldn't handle it,” said Monteiro. The sales generated by DFS were in time estimated to be fifty times higher per square foot than in Harrods, the London department store.

But as quickly as it made money, the owners were siphoning the profits off to wind up the car business. This meant that Monteiro had to delay payments for supplies and use his wits to keep afloat. The agent for a top-selling whisky lost patience once and said, “We won't deliver till you give us a check.” Monteiro sent a check on which the numbers and figures did not match so it would not be honored by the bank. When the agent called to ask, “What the hell is this?” Monteiro said, “Oops, sorry, bring it back, and I will write another check.” This bought him another two weeks. “It was fun and games,” he said.

Monteiro came up with the idea of building a bigger shop downtown to cope with the growing demand and to expand the range of merchandise. The Kai Tak terminal shop was handling only 20 percent of the tourists' needs. The Japanese wanted to buy cameras, perfumes, cosmetics, expensive pens, and other luxury items. There was nothing in their contract to confine DFS to the airport or to restrict it to selling only liquor and tobacco. The company could open a store downtown for “one-stop” shopping and make it attractive to the tourists by offering to deliver all their purchases at the airport.

The four owners consulted and agonized over the proposal. They would need funds to rent premium space in downtown Hong Kong for a new store, then design it, refurbish it, and increase the staff fourfold. If they made a mistake in their calculations, it could sink the company again. Hong Kong was a more cutthroat place than Honolulu. And a downtown
store would not prosper if the Chinese travel agents refused to deliver the Japanese tourists. Many of the travel agents had their own overpriced general merchandise shops or friends with stores who gave them huge kickbacks for delivering tour groups. It was a racket that everyone except the tourists knew about.

Monteiro went to see the top twenty travel agents in Hong Kong who controlled almost all the business, and put a proposal to them. If the agents would give up their own retail operations and bring all the Japanese tourists to the DFS downtown store, he would give them good commission on the items their tour groups bought, such as handbags, fountain pens, and watches. “Why do you want to run a store,” asked Monteiro, “when I'll run it for you, with a better selection, better price, and I will give you the commission?”

“With the exception of one or two agents, they said they thought it a great idea and they would go along with it. So I brought that back to Chuck and Bob and they said, ‘Let's do it.'”

DFS located the downtown store on the first floor of Hotung House on Hankow Road in Kowloon, behind the Peninsula Hotel, the “grand dame” of Far East hotels. They hired two managers and a staff of salesgirls. The feng shui—the placement and arrangement of things to ensure harmony with the environment—was judged to be excellent. They had a formal opening and a party.

However, the travel agents who had seemed so willing to cooperate were not going to give up their own businesses so easily. They threatened the providers of luxury goods and souvenirs in Hong Kong that they would drop them if they supplied wholesale items to DFS. “The travel agents ‘locked' those guys up,” said Monteiro, recalling the early days over tea in the Portuguese Club Lusitano in Hong Kong. “ST Dupont lighters were an absolute item every Japanese bought in those days, and ST Dupont would not supply us. Rolex would not supply us. Chanel would not supply us.”

Monteiro called Feeney. He told him, “I have all these travel agents to deal with. I have to build the store. I have to hire the staff. I have got hardly any management working for me because we can't afford it, and I have got to see all these suppliers to get supplies. I just can't do it by myself. You've got to help.”

At this point, Miller had taken a leave of absence from active involvement in the company. He had been working the business with Feeney for
ten years. He had gone around the world to terminate the offices of Tourists International and Cars International, which hadn't been pleasant work. He now wanted to do other things by investing the dividends. He and his wife, Chantal, with their infant daughter, Pia, took up residence in London.

Feeney realized that he would have to move to Hong Kong himself. In September 1967, he flew into Kai Tak airport, in those days a memorable experience. Approaching at low altitude, passengers could see the flickering blue lights of television sets in the six-story apartment blocks of Kowloon. No other airport in the world required pilots to make such a tight, curved approach across the heart of a city.

Feeney and Monteiro split the suppliers into two groups and did the rounds. They offered to buy at “dead margin” simply to get stock. Still the business didn't come. The agents who had originally tried to get the distributors to boycott DFS had also lied about bringing tour groups to the store. They were up to their knees in crocodiles. “It was the worst nightmare of my life,” said Monteiro. “It was hell. I went back to the twenty agents to see what the hell was going on. I said, ‘OK, you bastards, you screwed me. This is what I propose, you either come to my store and support me or I won't sell duty-free liquor to your customers.'”

Monteiro told the travel agents he would continue filling their booze orders for one week, and then he would cut them off unless they also brought the Japanese to the shop. They capitulated. They started bringing tour groups to the downtown shop. Within a week, the DFS store was so busy, they could not find enough salesgirls to hire.

“The travel agents would work with anybody who gave them a kickback, and they realized after a while we were the best game in town,” said Feeney. “They made more commission from us. To this day still do. They might make $1 a head for bringing people to a restaurant for lunch, but when it came to us they made serious money.” Some of the travel agents found that when they did bring people to the DFS stores, the commissions they got were so big that they closed their own stores down.

One of the most audacious gambles in the history of Hong Kong retailing had paid off. Duty Free Shoppers could now sell high-end luxury goods of every description to tourists who might imagine they were in a store where everything, not just booze and tobacco, was duty free. “We were using the carrot of the liquor and tobacco to bring them in to buy watches,” said Feeney.

The pressure on the salesgirls was unrelenting. They worked fifteen hours a day, seven days a week. Their husbands began complaining. They called up the store saying, “Hell, I don't see my wife any more, the kids don't see their mothers any more, you know, when will it stop?” Finally, the angry husbands got together and confronted management in the downtown shop. Feeney and Monteiro faced them together as they screamed abuse. “Please be patient,” pleaded Chuck. A few of the women left, but most stayed. The pressure eased as the staff was doubled, then doubled again.

There was no letup for Monteiro. On New Year's Eve, he and a manager did stocktaking in tuxedos while their fiancées waited for them to finish. At 2:00 AM they were still working, and the women had gone home.