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.
The Japanese were genuinely astonished at the duty-free prices. Because of a policy of protectionism, Japan levied a 220-percent tax on imported premium cognac and whisky. In Tokyo a bottle of whisky that retailed at $25 cost only $6 in the duty-free shop. A $50 bottle of cognac in Tokyo cost a mere $10 duty free.
Within a year, the trickle of Japanese tourists turned into a stream, then a river. “Business is booming along here,” Feeney wrote to Jean Gentzbourger in Paris on March 23, 1966. In less than a year, the crisis that almost bank-rupted them was beginning to ease. The profits from duty-free sales enabled Miller to pay off the debts in the car business. More important, Feeney was succeeding again in business. There were parties at the house he rented for his family at Aina Haina Beach, a twenty-minute drive from Honolulu. He was thrilled with his three daughters, Juliette, Caroleen, and Leslie. “Kids are good—make some!” he wrote in another letter to Gentzbourger, in which he joked that Danielle was getting so dark “we may have racial problems if she doesn’t stay out of the sun a bit.”
Things looked so promising that Feeney and his co-owners felt confident enough to bid $1 million to renew the exclusive duty-free concession in 1967 for another three years. It made headlines in the Honolulu newspapers. It seemed an outrageous amount to undertake to pay for a tiny airport concession. But the owners knew what they were doing. Japan’s postwar recovery was so successful that by 1968, it was the second-largest free-market economy in the world. The exodus of free-spending Japanese tourists was only getting under way.
In January 1968, Feeney and his young family went back to Europe and set up home again in Paris. Alan Parker went to Hawaii to run the operation as general manager, with Joe Lyons, the top car honcho in Europe, as sales manager. Like Feeney before him, Parker was astonished at what he found. “The original shop in Hawaii when I arrived was no wider than a desk,” said Parker. “I can remember the pressure building—it grew so quickly, there were times the counter was being forced over on the salesgirls. The crush was incredible to buy items that were either not available in Japan or cost ten times the price. The first Japanese tour groups were company-sponsored trips, and that’s really what took off the business. We were in the right place at the right time, and we were very lucky. The smart thing . . . was we realized that Japan had to explode from the point of overseas tourism.” They expanded the airport store to 400 square feet and stocked it, according to a contemporary article in the Honolulu Star-Bulletin, “with alligator handbags, watches, jewelry, leather goods, pen and pencil sets and diamonds in addition to liquor, cigarettes and perfume.”
Feeney commuted to Honolulu to work out with Parker and Lyons more ways of capitalizing on the Japanese tourism wave. In 1969, they established an 8,000-square-foot downtown duty-free store. There was nothing in the terms of the concession to prevent them from expanding out of the airport. They located their new store in the Waikiki Business Plaza atop Japan Airlines’ headquarters. Vacationers could stroll in, pick what they wanted, and have their purchases delivered to their planes. The tourists by then had even more money to spend. In 1968, the Japanese government had raised the foreign exchange allowance per person to $500 and further relaxed travel restrictions. By 1969, four out of every five Japanese travelers were tourists, with shopping rather than recreation their main priority.
The owners became skillful at enticing the Japanese into their downtown duty-free store, which eventually became as big as an aircraft hanger. They paid travel agents to bring tourists there even before they checked into their hotels. They ensured that the local guides, the bus drivers, and the taxi drivers were well looked after by providing a waiting room with refreshments and a television, so they were not in a hurry to get away after delivering their charges to the mercy of the salesgirls. As customer relations manager, Maurice Karamatsu, a Japanese speaker from Hawaii, greeted tour guides at the airport and befriended the drivers who brought the groups to the downtown store. He had gifts for everyone. When escorting Japanese into the store, Karamatsu always said, “Now you will be going into little Tokyo—except much cheaper!” The customers were given a card so that they could claim special gifts on second or third visits. In Honolulu, they averaged more than two shopping visits per Japanese.
Word got back to Feeney’s Cornell friends about his success in Hawaii, which was known also as the Sandwich Islands. The name was given to Hawaii in 1778 by Captain James Cook of the British navy, in honor of his patron, the Earl of Sandwich. They sent him a mock newspaper. The headline read: “The Sandwich Man Makes It Big in The Sandwich Islands.”
One day in 1965, when things were still financially precarious for Feeney and Miller, a tall, dignified Frenchman came through the Overseas Waiting Lobby in Honolulu airport and strolled over to the DFS shop. Michel Camus, president of the Camus cognac company, was on his way to Asia to promote his brandy, then little known around the world. “Why is there no Camus on display?” he asked. On hearing the reason—the difficulty of getting credit because of their cash-flow problems—he invited Chuck Feeney to come and see him in Paris.
Michel Camus and Chuck Feeney had done business before. Some years earlier, when selling booze to the U.S. Navy in the Mediterranean, Feeney had asked Jean Gentzbourger to find an inexpensive brandy to include in their portfolio. The Frenchman had gone to the International Food and Wine Fair in Paris and found a stand marked “Camus” manned by a gentleman who reminded him of Charles de Gaulle. Michel Camus invited Gentzbourger to visit his cellars near the town of Cognac in we
stern France, and he sold him fifty cases of cognac at a bargain price. Feeney and Miller became clients. The president of the French company even created a “Camus Celebration” bottle for Feeney in 1963.
When Michel Camus turned up in Hawaii in 1965, Duty Free Shoppers was having trouble getting credit from most suppliers. “If you were a booming success they would give you credit, but if you were just starting out, they wouldn’t,” said Feeney. The duty-free business was seen by most luxury goods manufacturers as a rather shady operation, run by hustlers in small, cramped shops. The elite sellers felt their brands would be diminished by association with a “discount” store. “Duty free in those days was like tax dodgers,” explained Jean Gentzbourger, who had joined Camus as export sales manager. “People didn’t understand it, they said there must be something wrong with it.”
Distributors also hated duty free because the store owners always tried to go directly to the makers and get factory prices, thus cutting them out—which was another disincentive to extending credit. Suppliers of liquor were exceptionally hard-nosed with DFS. Normally they would extend retailers sixty-day credit for spirits. They gave Duty Free Shoppers only fifteen- to thirty-day credit and sometimes asked for payment in advance. When he needed 1,000 cases of liquor at $20 a case, Feeney might have to find $20,000 cash, and that was before any of it was sold.
The established cognac makers, Hennessy and Martel, were “very snobbish with us” because DFS was so small, recalled Bob Miller, and Chanel would only allow its perfume to be sold in the grandest shops. Alan Parker was once brusquely turned away from the office of Patek Philippe, the prestigious Geneva watchmaker, as “we weren’t a place that could sell watches of their quality.” Feeney recalled that the watch companies were “very tough operators,” and the major watchmakers wouldn’t deal with them—though when he found out that the head of Rolex had an Irish wife, he got chatting to him after a business function, made the ethnic connection, and got permission to sell Rolex.
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