The Los Angeles Board of Airport Commissioners has chosen DFS Group LP to develop and operate duty free and duty paid merchandise concessions in all passenger terminals at Los Angeles International (LAX).
The contract, which runs for 10 years with three additional one-year options, requires DFS to design, build and operate all of the duty free merchandise concessions throughout the airport, including 13 stores consisting of 37,600 sq. ft.; within that square footage, the Tom Bradley International Terminal under construction is expected to have one 14,000 sq. ft. store and a 9,900 sq. ft. multi-unit in the core of the terminal. In Terminal 2, there will be an area of approximately 4,800 sq. ft. Terminals 3, 4, 5, 6 and 7 each will have one duty free shop in an average of 1,160 sq. ft. In Terminals 1 and 8, the shops will begin operations as duty paid retail stores until the airlines create their international departing schedules from those terminals. The company also will have about 7,900 sq. ft. of storage space in the ramp level of the TBIT.
DFS will market and sell traditional duty free merchandise, such as spirits and wine, fragrances, cosmetics and tobacco products, as well as electronics and fashion-branded boutiques, high-end specialty duty free stores.
Revenue to Los Angeles World Airports will be the greater of a minimum annual guarantee or a performance rent, which consists of a percentage rent and a contingent rent. For each year under the agreement, the MAG will be the greatest of the following: (1) $30M per year in each of the first two years and, thereafter, $33M increasing by an annual consumer price index adjustment; (2) 90% of the prior year’s rent payments to LAWA, unless, beginning in the third year, international enplaned passengers at LAX decrease by more than 20 percent from the prior year; or (3) $6.25 per enplaned international passenger beginning in the third year and, thereafter, increased by an annual CPI adjustment. Under the performance rent methodology, a percentage rent, based upon the aggregate sum of the total gross sales in each of five product categories multiplied by each product category’s percentage rate, is added to a contingent rent, which is equal to 10% of the gross sales exceeding $175M in any given year.
The contract is subject to approval by the Los Angeles City Council.
